Six-month Report June 30, 2000

Six-month Report June 30, 2000

PIRELLI Società per azioni Head office in Milan, Viale Sarca 222 Share capital – Euros 1,034,429,598.28 Milan Courts, Companies Register No. 15901

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PIRELLI S.p.A. - MILAN Six-Month Report at June 30, 2000 ------------------------------CONTENTS

Page COMMENTS ON OPERATIONS

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Financial review

5

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The Group

6

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Cables and Systems Sector

18

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Tyres Sector

25

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Pirelli S.p.A.

33

PIRELLI GROUP

- Consolidated six-month report

-

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Consolidated balance sheets

38

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Consolidated statements of income

42

.

Form and content

44

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Comments on the consolidated balance sheet

45

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Comments on the consolidated statement of income

55

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Other information

59

Supplementary information

63

.

Consolidated statements of cash flows

64

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Consolidated statements of changes in shareholders' equity

65

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Reconciliation of the six months net results of Pirelli S.p.A. and corresponding

.

-

37

consolidated figures

66

List of consolidated companies

67

Auditors report on the limited review of the interim financial report for the six months period ended June 30, 2000

77

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PIRELLI S.p.A. Board of Directors ------------------------------------------------------------------------------------------------------------------------Chairman and CEO Marco Tronchetti Provera

Deputy Chairman

Alberto Pirelli

Directors

Carlo Buora Eugenio Coppola di Canzano Carlo De Benedetti Alberto Falck Giovanni Ferrario Giuseppe Gazzoni-Frascara Georg F. Krayer Angelo Marchiò Giuseppe Morchio Luigi Orlando Riccardo Perissich Giampiero Pesenti Ennio Presutti Carlo Alessandro Puri Negri Vincenzo Sozzani Frank Vischer ------------------------------------------------------------------------------------------------------------------------

Secretary to the Board Sergio Lamacchia ----------------------------------------------------------------------------------------------------------------------Board of Statutory Auditors ----------------------------------------------------------------------------------------------------------------------Chairman Luigi Guatri Standing members

Rosalba Casiraghi Giorgio Oggioni

Alternate members

Mario Brughera Alfredo Malguzzi ----------------------------------------------------------------------------------------------------------------------General Managers ----------------------------------------------------------------------------------------------------------------------Finance and Administration Carlo Buora Tyres Sector Giovanni Ferrario Cables and Systems Sector Giuseppe Morchio --------------------------------------------------------------------------------------------------------------------Independent auditors --------------------------------------------------------------------------------------------------------------------PricewaterhouseCoopers S.p.A. --------------------------------------------------------------------------------------------------------------------

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COMMENTS ON OPERATIONS

FINANCIAL REVIEW

The consolidated statement of income for the six months ended June 30, 2000 shows a net income of Euros 961 million, compared to Euros 119 million for the first half of 1999. The net income for the entire year 1999 was Euros 305 million.

The consolidated net income attributable to Pirelli S.p.A. amounts to Euros 958 million, compared to Euros 102 million for the first six months of 1999.

The consolidated net income of the Group for the first six months was characterized by an improvement in the operating profit, which rose from Euros 177 million to Euros 213 million, the sale of Pirelli’s Terrestrial Optical Systems business to Cisco Systems, which led to proceeds of Euros 1,575 million, and extraordinary productive restructuring and rationalization charges of Euros 254 million.

Sales revenues, totaling Euros 3,598 million, present a growth of 12.8 percent over the first half of the prior year, equal to Euros 3,190 million.

The gross operating profit is equal to Euros 402 million (11.2 percent of sales) compared to Euros 343 million in the first half of 1999 (10.8 percent of sales).

The consolidated operating profit is Euros 213 million (5.9 percent of sales) compared to Euros 177 million (5.5 percent of sales) in the first half of 1999, showing an increase of 20 percent. The improvement, found in both Sectors, is due to higher volumes and the continual actions taken to improve efficiency in the use of productive factors.

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The net financial position shows a liquidity position of Euros 296 million compared to a net debt position of Euros 1,017 million at December 31, 1999. The change is mainly the result of the net effect of extraordinary transactions (sale of the Terrestrial Optical Systems business to Cisco Systems and the acquisition of the power cables businesses in Finland and Holland).

The consolidated shareholders’ equity rose from Euros 2,454 million at December 31, 1999 to Euros 3,288 million as a result of the net income for the period and the payment of dividends.

The net income of Pirelli S.p.A., the Group holding company, is Euro 226 million compared to Euro 220 million for the six months to June 30, 1999 and Euro 229 million for the entire year 1999.

THE GROUP

The first half of 2000 was marked by a competitive picture that was substantially unchanged from the prior year, with pressure over raw materials prices. In this scenario, the Group raised volumes which, besides continuous actions to reduce costs and improve productive operations, made it possible to increase the results over the prior year. In February 2000, was concluded the sale of the Terrestrial Optical Systems business to Cisco Systems, as described in the introduction to the financial review. On January 14, 2000, the acquisition of the majority interest in Pirelli Telecom Cables Co. Ltd Wuxi (China) was concluded and the stake is now equal to 66.47 percent. Also finalized in the first quarter was the acquisition by Pirelli Cavi e Sistemi of business activities in Finland and Holland from Draka.

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In February 2000, Pirelli Group reached an agreement with BICCGeneral for the purchase of the power cables business which had belonged to the BICC plc British group and was bought last year by the American group General Cable.

Cables and Systems Sector

Over the last few years, the Cables and Systems sector has proceeded to separate the power and telecommunications operational activities.

Power The power sector is going through an enormous phase of transformation in Europe that is connected with the deregulation and privatization process of the big European utility companies and the ever-greater integration of the markets. The strategy adopted is that of contributing to the consolidation of the sector mainly by the acquisition of selected businesses: Siemens last year and NKF and BICC this year. This will lead to total investments in 2000 for Euros 355 million, of which Euros 141 million have already been invested in the first half. This has enabled the sector to become a world leader in these business areas.

Telecommunications Pirelli is already the third largest manufacturer worldwide of optic cables; investments are expected to be made during the three years 2000 - 2002 for more than Euros 670 million, of which Euros 194 million are earmarked to increase the productive capacity of optic fibers. In the year 2000 alone, investments will total Euros 240 million, of which Euros 69 million were invested in the first half. In the optic components area, a development project was begun in the last few months which led to the addition of a significant number of new qualified professionals and the start of investments in Italy and the United States which are the reference market for the new products.

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Tyres Sector

In the Tyres Sector, the most significant investments were concentrated in the high range of the three business lines (passenger car/light truck, truck and motorcycles), developing new products also using the new MIRS technology. This technology, based on “mini-production facilities” with a high degree of flexibility strategically distributed over the territory, will become the most significant capital expenditure over the next few years, totaling over Euros 400 million, an amount which should be added to the Euros 610 million already scheduled for the three years 2000 - 2002. In 2000, total capital expenditures will amount to Euros 220 million, of which Euros 92 million were already invested in the first half.

The above attests to the efforts made by the Group in terms of capital expenditures, which, together with the investments for organizational and productive restructuring (Euros 254 million), amount to more than Euros 2.5 billion (over Euros 1 billion in 2000 alone).

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The key figures of the consolidated financial statements for the six months ended June 30, 2000 can be summarized as follows:

(in millions of euros)

. Sales revenues . Gross operating profit % of sales . Operating profit % of sales . Financial income and expenses, net . Extraordinary items, net . Income taxes . Net income % of sales .Net income attributable to Pirelli S.p.A. .Earning per share (in euros) . Shareholders' equity . Shareholders’ equity attributable to Pirelli S.p.A. . Equity per shares (in euros) . Net financial (liquidity) debt . Capital expenditures . R&D expenditures . Personnel (number) . Factories (number) . Pirelli S.p.A. ordinary shares (No. in millions) . Pirelli S.p.A. savings shares (No. in millions) . Total Pirelli S.p.A. shares (No. in millions)

6/30/2000

6/30/1999

12/31/1999

3,598 402 11.2% 213 5.9% (32) 1,166 (386) 961 26.7% 958 0.48

3,190 343 10.8% 177 5.5% (3) 6 (61) 119 3.7% 102 0.05

6,482 678 10.5% 331 5.1% (24) 89 (91) 305 4.7% 293 0.15

3,288 3,114 1.57 (296)

2,366 2,193 1.11 683

2,454 2.275 1.15 1,017

235 105 41,809 86

204 95 40,123 83

469 200 40,103 87

1,901 88 1,989

1,897 88 1,985

1,897 88 1,985

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. Sales revenues Sales revenues, equal to Euros 3,598 million, show an increase of 12.8 percent over the first half of 1999. This is due to both volume increases and the positive currency exchange effect that was partly offset by the deconsolidation of the Photonics business that was sold to Cisco. The change in sales can be summarized as follows:

• • • • • •

Currency exchange effect Volumes Prices Mix and other Deconsolidation of Photonics business Consolidation of entities acquired

+ 6.4% + 5.3% + 1.1% + 0.1% - 3.7% + 3.6% ------------+ 12.8% ========

The breakdown by sector and geographic area of destination is as follows:

Sector

Cables and Systems Tyres

1 st half 2000 60% 40%

1 st half 1999

Geographic area

59% Europe 41% North America Central and South America Australia, Africa and Asia

1 st half 1 st half 2000 1999 55% 16% 16% 13%

57% 16% 18% 9%

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.

Operating profit Operating profit is Euros 36 million higher than the first half of the prior year, representing 5.9 percent (5.5 percent in 1999) as a percentage of sales; this change is mainly due to the following: Millions of euros • • • • • • • •

.

Currency exchange Deconsolidation of Photonics business Consolidation of entities acquired Prices (excluding metals) Volumes and mix Materials Efficiency Change in unit costs and other

+ 12 8 + 7 - 61 + 71 - 26 + 29 + 12 --------------+ 36 =========

Extraordinary items Extraordinary items show an extraordinary income balance of Euros 1,166 million compared to Euros 6 million in the first half of 1999. This is mainly due to the net gain, before taxes, on the previously mentioned sale of the Terrestrial Optical Systems business to Cisco Systems (Euros 1,411 million) and extraordinary restructuring and rationalization charges of Euros 254 million.

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Net income Net income is equal to Euros 961 million compared to Euros 119 million in the first half of 1999. Contributing to this result are the increase in operating profit (+ Euros 36 million) and the increase in the income balance of extraordinary items, net (+ Euros 1,160 million) despite a higher net expense balance of financial income and expenses (- Euros 29 million), notwithstanding a better average net financial position. This is due to a reduction in both the real rates in Turkey and Brazil and extraordinary exchange gains in the first half of 1999. Tax expense went from Euros 61 million to Euros 386 million mainly in relation to the Cisco deal.

.

Shareholders’ equity Shareholders’ equity rose from Euros 2,454 million at December 31, 1999 to Euros 3,288 million, with an increase of Euros 834 million. This increase can be analyzed as follows: Millions of euros • Translation adjustment • Net income for the period • Dividends to third parties − Pirelli S.p.A. − Other Group companies • Other changes

39 961 (151) (12)

(163) (3) ---------834 ----------

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.

Net financial position The net financial position shows a net liquidity position of Euros 296 million compared to the net debt position of Euros 1,017 million at December 31, 1999. The change of Euros 1,313 million can be explained by the following cash flow analysis:

• Translation adjustment • Operating profit • Depreciation and amortization • Net investments balance • Change in working capital • Change in provisions and other • Free cash flow • Extraordinary items, net • Financial income and expenses, net • Tax income and expenses, net • Dividends paid • Other changes

8 213 189 (181) (193) (24) 4 1,166 (37) (386) (163) 719

• Net cash flow • Change in shareholders’ equity • Change in net financial position

1,303 2 1,313

The item “Other changes” includes the effect of the deconsolidation of the businesses sold (Euros 150 million), the change in the provisions of an extraordinary nature (Euros 254 million) and the change in tax receivables and payables (Euros 299 million).

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Capital expenditures Capital expenditures amount to Euros 235 million compared to Euros 204 million in the first half of 1999, with an increase of Euros 31 million. The capital expenditures to depreciation ratio is 1.41 (1.35 in 1999).

.

R&D expenditures R&D expenditures total Euros 105 million, compared to Euros 95 million in the first half of 1999, and were completely expensed during the period; they represent 2.9 percent of sales (3 percent in 1999).

.

Personnel Personnel numbered 41,809 units at June 30, 2000 compared to 40,103 units at December 31, 1999 and 40,123 at June 30, 1999. In the first six months of the year, 3,305 units left and 5,011 units were added, with a net increase of 1,706 units (of which 815 refer to the former Draka businesses). The personnel breakdown is as follows:

Total work force of which: temporary temporary former Draka units Active work force of which: former Draka units Total work force excluding the acquisitions of which: Terrestrial Optical Systems business Total work force within the companies included in the prior year consolidation area

June 30, 2000

December 31, 1999

41,809

40,103

3,966

2,192

62

-

37,781

37,911

753

-

40,994

40,103

-

709

40,994

39,394

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Related party transactions Required disclosures according to article 2359 of the Italian Civil Code referring to Consob Communication No. 97001574 of February 20, 1997 and No. 98015375 of February 27, 1998, which deal with related party transactions by Group companies, are listed below according to the effects of such transactions on the balance sheet and statement of income of the consolidated financial statements at June 30, 2000.

The effects deriving from the transactions between Pirelli S.p.A. and its subsidiaries are disclosed in the financial statements and notes of the same Group holding company and, as is the case for those relating to transactions among the subsidiaries, eliminated upon the preparation of the consolidated financial statements. All the transactions, including those between the Group holding company and its subsidiaries as well as those among the same subsidiaries, fall under the ordinary operations of the Group, are governed by market terms, and there are no transactions of an unusual and exceptional nature, or potential conflicts of interest. The following table presents the major transactions at June 30, 2000 that Pirelli S.p.A. Group has entered with the parent companies (Pirelli & C. A.p.A., Pirelli & C. Luxembourg S.A.) and their subsidiaries, which are included in the consolidation area of Pirelli & C. A.p.A..

(in millions of euros)

Type of transaction

With parent companies

With subsidiaries of Pirelli & C. A.p.A.

Total

TRADE RECEIVABLES AND OTHER TRADE PAYABLES AND OTHER

0.2 (0.5)

17.4 (15.8)

17.6 (16.3)

FINANCIAL RECEIVABLES FINANCIAL DEBT

77.3 (156.2)

630.2 (540.8)

707.5 (697.0)

REVENUES FOR GOODS AND SERVICES COSTS FOR GOODS AND SERVICES

0.5 (1.4) 17.4 (4.2)

0.5 (7.0) 4.2 (2.9)

1.0 (8.4) 21.6 (7.1)

FINANCIAL INCOME FINANCIAL EXPENSES

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Transactions of Pirelli S.p.A. and its subsidiaries with the parent companies mainly refer to the following: • financial receivables, relating to loans receivable by Pirelli Finance Luxembourg S.A. (subsidiary of Pirelli S.p.A.) from Pirelli & C. Luxembourg S.A.; • financial debt, relating to payables from transactions on the current account by Pirelli Servizi Finanziari S.p.A. with Pirelli & C. A.p.A.; • revenues for goods and services, relating to the performance of various services rendered by Pirelli S.p.A. and Pirelli Informatica S.p.A. to Pirelli & C. A.p.A.; • costs for goods and services, relating to costs for the corporate secretarial services rendered by Pirelli & C. A.p.A. on behalf of Pirelli S.p.A.; • financial income and expenses, relating to interest income and expense on the aforementioned current account transactions and loans, as well as costs and revenues for hedging transactions carried out by Pirelli Finance Luxembourg S.A. (subsidiary of Pirelli S.p.A.) on behalf of Pirelli & C. A.p.A..

Transactions of Pirelli S.p.A. and its subsidiaries with the subsidiaries of Pirelli & C. A.p.A. mainly refer to the following:

• trade receivables and other, relating to the sale of property by Pirelli Cavi e Sistemi S.p.A. to Lambda S.r.l. (subsidiary of Milano Centrale S.p.A.); • trade payables and other, relating to services rendered by companies in the Group of Milano Centrale S.p.A. (subsidiary of Pirelli & C. A.p.A.) to Pirelli S.p.A. and its subsidiaries and also the sale of the property of Lambda S.r.l. to Pirelli Cavi e Sistemi S.p.A.; • financial receivables, relating to receivables from transactions on the current account by Pirelli Servizi Finanziari S.p.A. with companies of the Group of Milano Centrale S.p.A.

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(subsidiary of Pirelli & C. A.p.A.) and loans receivable by Pirelli Finance Luxembourg S.A. from Turk Pirelli Enerji A.S. (indirect subsidiary of Pirelli & C. A.p.A.); • financial debt, relating to payables from transactions on the current account by Pirelli Servizi Finanziari S.p.A. with companies of the Group of Milano Centrale S.p.A. (subsidiary of Pirelli & C. A.p.A.); • revenues from goods and services, relating to cost recoveries for various services rendered by Pirelli S.p.A. and Pirelli Informatica S.p.A. (subsidiary of Pirelli S.p.A.) on behalf of Milano Centrale e Servizi S.p.A. and its subsidiaries; • costs for goods and services, relating to costs for property management services incurred by Pirelli S.p.A. and its subsidiaries for the services rendered by companies of the Group of Milano Centrale S.p.A. (subsidiary of Pirelli & C. A.p.A.); • financial income and expenses, relating to interest income and expense on the aforementioned current account and loan transactions. Significant subsequent events after the end of the first half and the future outlook for the current year

In July, the European Commission granted authorization for the purchase of the power cables business which belonged to the British Group BICC and was bought the previous year by the American group General Cable. At the end of July, Pirelli announced the decision to delist the shares on the San Paolo stock exchange of the two Brazilian affiliates Pirelli Cabos S.A. and Pirelli Pneus S.A. upon the launch of the takeover bid for all their outstanding shares. The total outlay, should the bid prove successful, will amount to US $92.9 million. In August, the acquisition of 10 percent of our companies operating in the optical components and submarine telecommunications systems was signed by Cisco for US $100 million. As regards the outlook for the second half, operating income is expected to show an improvement over the first half of the year, thus allowing the company to consolidate the gains achieved during the first six months.

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CABLES AND SYSTEMS SECTOR (in millions of euros)

6/30/2000

6/30/1999

12/31/1999

2,171 210 9.7% 124 5.7% 1,305 1,080 49.7% (843) 141 49 20,240 64

1,893 181 9.6% 99 5.2% (3) 63 3.3% 722 135 49 19,498 62

3,921 355 9.1% 183 4.7% 8 136 3.5% 700 210 99 19,046 65

. Sales revenues . Gross operating profit % of sales . Operating profit % of sales . Extraordinary items, net . Net income % of sales . Net financial (liquidity)/debt . Capital expenditures . R&D expenditures . Personnel (number at end of period) . Factories (number)

Sales revenues amount to Euros 2,171 million (+ 14.7 percent over the first half of the prior year).

Specifically: • Currency exchange • Volumes • Prices - Metals - Non-metals • Mix and other • Consolidation of entities acquired • Deconsolidation of Photonics business

+ 6.1% + 3.7% + 4.2% - 0.7% + 3.4% + 3.6% - 5.6% ----------+ 14.7% ======

Operating profit went from Euros 99 million for the six months ended June 30, 1999 to Euros 124 million for the six months ended June 30, 2000.

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The increase is due to: Millions of euros

• Currency exchange effect • Prices (excluding metals) • • • • • •

Volumes and mix Effect of consolidation of acquisitions Effect of deconsolidation of Photonics business Materials Efficiency Variation in unit costs and other

+ 9 - 25 ---------------- 16 + 28 + 2 8 + 4 + 22 7 ----------------+ 25 ===========

Net income is equal to Euros 1,080 million compared to Euros 63 million for the six months ended June 30, 1999. Net income includes the gain on the sale of the Terrestrial Optical Systems business net of related costs, as well as the accruals for restructuring charges connected mainly with recent acquisitions.

The net financial position went from a debt position of Euros 700 million at December 31, 1999 to a liquidity position of Euros 843 million. The strong improvement should still be viewed in relation to the collection of the proceeds on the sale of the above-described business to Cisco.

In power cables, sales rose although prices were continually under pressure. Overall, there was an improvement in profitability due to volumes, efficiency and product mix which compensates the rise in raw materials costs.

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The demand for telecommunications cables remained at buoyant levels during the period both for traditional cables in copper and for optical cables, contributing to the re-alignment of market prices. The high volume and the attention continually paid to reducing costs led to a recovery in the profitability of this sector.

In fiber optics, higher demand led to the full utilization of productive capacity, which is being extended according to the approved plans.

The technical evolution of the new

telecommunications networks has fueled a significant demand for the most recent types of fiber optics enhanced for photonics systems, thus bringing a positive contribution to the results of the business.

In submarine systems for telecommunications , production has been completed in Arco Felice for the supply of 4,600 km of tight cables for the Japanese customer KDD (TAT14 contract) and other orders were acquired for about 13,000 km of tight cables (for the Japanese customers KDD – East Asian Crossing, NEC – APCN2 and AJC) for which production began in the first quarter and will continue throughout the year in order to be completed by the spring of 2001. Moreover, the Mazara - Tripoli and IC 1 contracts were formally closed and the terminals on the PA-Rome repeater system connection were upgraded. Progress was made on the Italy - Greece project for power submarine systems with the completion of the production of the submarine cables at Arco Felice, the first installation of the cables by the cable-laying vessel Giulio Verne and also the land work on the Greek and Italian sides. Production of the cable for the Isle of Man project in Southampton was also concluded and the first stage of its installation was begun using the Giulio Verne ship; post lay burial will begin between July and September and is expected to be completed in the last quarter.

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As for exports, the trend in the first six months of the year in telecommunications cables has been good, especially for OPGW; the high-voltage cables business, instead, has been moderate due to the scarcity of projects.

Joint ventures and new markets

In China and South Africa, the power cables market displayed a better economic picture during the first half of 2000 compared to 1999, but is nevertheless still weak; in the optic telecommunications area, instead, the market is in a strong phase of growth. During the first half of 2000, action continued to strengthen and consolidate the internal organization and the growth of market shares.

In South Africa, the market is showing signs of a recovery. The Rosslyn Cables power cables business is in the process of being acquired. This is a local company from which positive results are expected in market share and internal production after its integration.

Actions are continuing to improve efficiency.

At June 30, 2000, personnel numbered 20,240 (of which 3,218 were employed under temporary work contracts) compared to 19,046 (of which 1,779 were under temporary work contracts) at December 31, 1999. In the first six months of the year, 1,929 units left (of which 709 were due to the sale of the Terrestrial Optical Systems business) and 3,123 units were added (of which 815 units came from the former Draka businesses).

Capital expenditures total Euros 141 million. In the second part of the year, investments earmarked to increase productive capacity are expected to be stepped up in the geographic areas and the product segments that show a growing demand, especially the fiber optics segment.

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At June 30, 2000 the number of factories is 64, two production facilities more than at June 30, 1999.

As for materials, the trend in non-ferrous metal quotations confirmed the levels seen during the last few months of the prior year. Copper and aluminum, in particular, displayed an increase of some 25 percent over the first half of 1999, due to the solid demand in North America and the recovery in the Far East and China. With regard to other raw materials, compared to the values in the corresponding period of the previous year, the prices of the main commodities in the chemical area recorded a strong increase owing to the combined “oil price/US dollar” effect and the steady demand as a result of world economic recovery. Market consensus, for the second part of the year, anticipates a phase of stability/slight drop in prices.

Research in the various areas can be described as follows: -

in the field of power cables, work has continued on the development of the undergrounding system for the transmissions and distribution network systems.

This

innovation will make it possible to extend the adoption of solutions using non-aerial cable systems, thus offering greater reliability and a reduction in environmental pollution. After completing the feasibility study on the innovative process for the production of medium-voltage cables, development of production activities were positively begun;

-

in the field of fiber optics, less than 12 months after the launch of the fiber FreeLight (long-distance), the new fiber Pirelli Widelight was introduced. This fiber was designed to optimize the medium-range optical network, especially for uses in metropolitan areas;

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-

in the field of optic cables, a new ribbon type loose tube cable was developed with a 1,152 fiber capacity, suitable for installation in congested urban areas inside 2 inch tubes. Work continued on the development of new optic cable types to be used in modern panEuropean telecommunications networks;

-

in the field of optical components, steps were taken to intensify R&D and expand production at Bicocca, by simultaneously identifying a new site to further augment productive activities. Mention should be made of the development and introduction of new components such as electro/optical modulators integrated with variable attenuators, WDM grating filters in athermic packages and optomechanical switch prototypes, as well as the start of optical modules development activities.

Performance by geographic area

In Europe, the market is affected by the stability of volume demand although there is some sign of prices being adjusted to reflect the rise in costs. In a context characterized by excess productive capacity, improvements in overall market shares are being consolidated through business actions and the completion of the process of acquisitions.

In North America, the positive market trend is confirmed, especially in the Telecom Optics business of fiber optics for telecommunications, where the growth rate is higher than expectations. This is reflected in a significant increase in volumes and a greater capacity to influence sales prices, increasing the competitive potential. Margins and operating results benefited from both the trend in sales and productive efficiency.

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As for South America, in Brazil there are signs of a possible recovery, while in Argentina, in the midst of a recessive situation, competition is growing fiercer thus affecting prices.

Future outlook The second half is expected to bring a consolidation of the improvements achieved in the first part of the year.

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TYRES SECTOR (in millions of euros) 6/30/2000

6/30/1999

12/31/1999

1,425

1,296

2,559

204

178

349

14.3%

13.7%

13.6%

107

99

185

% of sales

7.5%

7.6%

7.2%

. Extraordinary items, net

(168)

1

(11)

. Net income

(125)

61

112

(8.8%)

4.7%

4.4%

722

492

535

. Capital expenditures

92

67

255

. R&D expenditures

56

46

101

20,813

19,921

20,332

22

21

22

. Sales revenues . Gross operating profit % of sales . Operating profit

% of sales . Net financial (liquidity) debt

. Personnel (number at end of period) . Factories (number)

Sales revenues for the first half of 2000 total Euros 1,425 million, an increase of 10 percent compared to the same period of 1999: the good trend in volumes (+10.3 percent, to which the inclusion in the area of consolidation of Alexandria Tire Company S.A.E. in July 1999 contributed 2.5 percent), in addition to the favorable currency exchange effect (+4.9 percent), were partly eroded by the drop in the sale price index (-2.6 percent) and the negative trend in the channel mix, with a higher content of Original Equipment tyres.

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Specifically, the increase can be analyzed as follows:

• • • • •

Currency exchange Volumes Consolidation of entities acquired Prices Mix and other

+ 4.9% + 7.8% + 2.5% - 2.6% - 2.6% -------------+ 10.0% =========

Operating profit, equal to Euros 107 million and representing 7.5 percent of sales, shows an increase of Euros 8 million over the corresponding period of the prior year, due to the following:

Millions of euros

• • • • •

Currency exchange Volumes and mix Efficiency Consolidation of entities acquired Change in unit costs and other

• Materials • Prices

+ 5 + 43 + 7 + 5 + 14 ------------+ 74 - 30 - 36 ------------+ 8 ========

The result for the period is a net loss of Euros 125 million, a reduction of Euros 186 million from the net income in the first half of 1999, due to extraordinary items net of Euros 168 million and higher financial expenses (due mainly to higher interest rates, a lower return on the liquidity in Brazil and Turkey and higher net debt). In particular, extraordinary items, net include industrial restructuring charges of Euros 148 million.

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Net financial debt, equal to Euros 722 million, increased by Euros 230 million compared to June 1999 and Euros 187 million in December 1999; the increase is substantially due to the inclusion in the consolidation area of Alexandria Tire Company S.A.E. and the payment of dividends.

The number of personnel compared to December 31, 1999 rose by 481, representing an increase of 643 production workers (mainly in Brazil and including seasonal summer workers) and 28 staff for commercial expansion in South American and a decrease of 190 staff, as a result of efficiency programs. Compared to the same period of the prior year, the increase in personnel is 892 units, of which 703 are due to the acquisition of Alexandria Tire Company S.A.E.. As regards Human Resources, some projects have been designed in order to improve the quality. These include the diagram of responsibilities in the R&D and Manufacturing areas and training related to the development of leadership qualities and managerial capacity. International mobility has also been used to a significant degree as a tool for professional development and integration. On the organizational front: there has been solid progress in the structure of the Business Units, the creation of a unit dedicated to the development of the productive plant based on MIRS technology, completed controlled on-line, and integration between marketing and product development.

Economic scenario

At the macroeconomic level, the first half of 2000 was characterized by good dynamics in the growth rate of the world economy which practically encompassed all the main geographic areas and by the overall increase in oil prices. The latter caused strong pressures in productive costs,

28

both for materials and power consumption, which have not yet been recovered in terms of sales prices owing to persisting fierce competition. Sourcing

During the first half of 2000, raw material and utility costs increased significantly owing to the following main factors: weakness of the Euro against the US dollar; the increase in the price of oil; the recovery in the price of certain commodities which, during 1999, had reached historically low price levels and an overall increase in demand. In order to confront the negative impact of the market, cost savings programs were begun for raw materials, the initial results of which were already seen during the course of the first half of 2000. In the meantime, steps were implemented to purchase materials and services on-line, with significant impacts on the entire sourcing cycle in terms of prices and effectiveness.

Vehicle and tyre market

In the first half of 2000, the automobile market in Europe recorded an increase of more than 2 percent, sustained by a good trend in almost all European countries. The only exception to this growth was Germany, where, despite the drop in the first four months is now showing signs of a recovery since the month of May.

In the United States, driven by greater household

consumption, car registrations rose quite significantly, more than 7 percent. The situation also appears positive in Latin America where the Brazilian and Argentinean markets display high growth rates of 7 percent and 12 percent, respectively.

The passenger car/light truck tyre market for Original Equipment shows a growth in line with the trend in the vehicle market. A particularly strong increase was recorded in the South American market with a growth of 20 percent, while Europe and North America show growth of 5 percent in the former, with record highs in Turkey, and 2 percent in the latter. The Replacements channel, in the first half, posted a positive trend in Europe (+2 percent) and

29

North America (+4 percent); in Latin America, the end of the first half was in line with 1999, which was nevertheless high.

As regards truck tyres, Original Equipment reported gains in Europe/Turkey (+5 percent) but especially in South America where the increase reached 17 percent. In the Replacements channel, while Europe posted a good trend for an increase of 4 percent over the first half of last year, Latin America was stagnant. In general, a good recovery in Asia and a better outlook for the “oil” dependent economies is confirmed.

Business Units Passenger car/Light truck: the Business Unit ended the first half with a significant increase in volumes equal to 6 percent worldwide, with a gain of 18 percent for Original Equipment that affirms the correspondence of our products to the most sophisticated requirements. Replacement sales remained globally in line with those of the prior year with a positive improvement in the trademark mix, thanks especially to the important gains in the volumes of Pirelli trademark tyres taking place in North American through cooperation with the Cooper network. The high tyre range is also very positive with growth (more than 20 percent) in premium passenger car tyres and the Scorpion line products for Sport Utility Vehicles.

Original Equipment in Europe, in particular, shows positive volumes, mix and supply levels in the first half of 2000, although the market situation is very competitive (sales prices are down and raw materials prices show an increase overall). An important factor to mention is the growth recorded in the premium segments for passenger cars and light trucks, thanks to sales of new products as P6000 Powergy, P Zero Rosso and Scorpion.

30

The growth forecast for the end of 2000 is 5 percent in volumes, with a slight improvement in sales thanks to a favorable mix and notwithstanding price erosion. In South America, volumes of Pirelli trademark tyres and supplying are higher with growth rates above market, thanks especially to the homologation of new products.

In Europe, for the Replacements channel, the positions have remained the same in a market that is substantially stable in volumes and one still characterized by strong pressures over prices for both Sell In and Sell Out, with a significant improvement in sales in terms of both product mix and high value added connected with the B2B development strategy (implementation of the Supply Chain and Automatic Reordering projects) from which consequential benefits are expected for us and for our customers and distributors. In this context, mention should be made of the first launch on Internet of the new Pirelli P2500 Euro tyre in March. The strength of the trademark is confirmed by various ad hoc inquiries; our position in Europe is confirmed, our positions in South American have decidedly increased and business shows strong growth in all the main Asian markets, in Russia and in the Baltic markets, where the Pirelli Key Point network has added new sales points and in Africa (the new South African affiliate is being opened). In North America, cooperation with Cooper is bringing in results for the Pirelli trademark in that territory. At the product level, the first half of the year was characterized by the launch, in Miami, Florida, of the P Zero Rosso, which is being added to the already existing P Zero System and Scorpion Zero tyres, thus forming the “P Zero Collection”. To date, the P Zero Rosso has received prestigious homologations on ultra high performance passenger cars, thus allowing Pirelli to reaffirm its technological and market leadership position in the ultra high performance segment. In the average and big cylinder passenger car segment, the P6000 Powergy, one year after its launch, has already obtained considerable success in both the Replacements and Original Equipment channels, registering a considerable portfolio of homologations.

31

Since March 2000, the new P2500 Euro can also be purchased on Internet in the main European countries. In fact, the most recently introduced passenger car tyre by Pirelli can be ordered at a fixed price on the Net, which also gives information about the dealer most conveniently located to the customer for mounting the tyres. As for the winter tyres, Snowsport, winner of tests conducted by all of the most important specialized German magazines, extends its range to add more 10 sizes marked with a V speed code (up to 240 km per hour). Truck: in the first half of 2000 sales volumes in the Truck Business Unit benefited of the inclusion in the consolidation area, starting from July 1999, of the Egyptian affiliate Alexandria Tire Company S.A.E. (about 100,000 pieces) and of greater expansion on the African and Middle East markets, made it possible by integration of the Egyptian unit. The market trend shows: in Europe, a positive trend with significant growth in Germany; in Turkey, a significant recovery after two critical years due to the economic crisis and then the earthquake; in Egypt, a growing market with volume increases in radial tyres; in South America, a Brazilian market in line with the prior year, but a weak market in Argentina and Venezuela. During the first half of 2000, new products were introduced for the “R” segment, tyres intended for mounting on heavy road transport vehicles in Europe and Turkey and the “G” segment, tyres intended for heavy cross-country use or under particularly difficult road conditions.

Motorcycle: the first six months of 2000 show important volume growth in the sales of motorcycle tyres compared to the first half of the prior year. Among the markets contributing the most to such performance, mention should be made of the United States, Latin America and Greece. Germany, although volumes have grown significantly, reported a drop at the beginning of the year which is gradually being recovered. At the European level, the positive trend in the Pirelli brand name is partly compensating the fall in the Metzeler trademark. Performance is also positive for the Scooter segment, especially for the second part of the half. As regards the Original Equipment channel, the good trend in Latin America and Germany more than compensated the slowdown recorded in Japan and Italy.

32

Finally, the first Web Motorcycle Tyres site was activated in June 2000 (www.Pirellimoto.it), which, besides the goal of providing services and information, will also make direct Pirelli product sales to the public.

Future outlook

The outlook for the end of the year is for an operating profit which confirms the gains already achieved during the course of the first half. This trend is tied to the strenght of the performance in South America, especially in Brazil, and the confirmation of the direction taken by Europe.

33

PIRELLI S.p.A.

Key data (in millions of euros)

BALANCE SHEET

6/30/2000

6/30/1999

12/31/1999

Intangible assets Tangible assets Financial assets Net working capital

12.6 26.8 2,406.8 131.9

13.0 30.7 1,927.0 126.5

12.3 29.0 2,235.9 181.8

2,578.1

2,097.2

2,459.0

2,257.1 64.4 256.6

2,172.9 42.1 (117.8)

2,181.4 65.8 211.8

2,578.1

2,097.2

2,459.0

1 st half 2000

1 st half 1999

1999

Financial income and expenses, net Valuation adjustments to financial assets Other operating income / (expenses)

287.3 0.0 (13.7)

281.5 0.0 (12.9)

310.4 (1.3) (23.1)

Income before extraordinary items and incomes taxes

273.6

268.6

286.0

Extraordinary items, net Income taxes

14.9 (62.5)

6.2 (54.4)

53.5 (110.6)

Net income for the period

226.0

220.4

228.9

Shareholders’ equity Provisions Net financial position

STATEMENT OF INCOME

34

Financial position

The financial position of the company shows the following changes between December 31, 1999 and June 30, 2000:

• net invested capital rose by Euros 119.1 million compared to December 31, 1999 due to the additional investment in Optical Technologies The Netherlands B.V. (Euros 183.4 million), partly offset by the reduction in working capital due mainly to the accrual for income taxes for the period and tax refunds.

• shareholders’ equity increased by the net income for the period and takes into account the dividends paid out relating to the prior year.

• net financial position, after these movements, went from a debt position of Euros 211.8 million at December 31, 1999 to Euros 256.6 million at June 30, 2000.

Results of operations

The results for the first half of 2000, net of income taxes of Euros 62.5 million, show a net income of Euros 226 million compared to Euros 220.4 million for the corresponding period of 1999. The improvement is mainly due to higher investment income and extraordinary income, which however generated an increase in the income tax expense.

35

Components of income before extraordinary items and income taxes

• Financial income and expenses, net of Euro 287.3 million (Euro 281.5 million in the first half of 1999) are made up of investment income of Euro 289.1 million and net interest expense of Euros 1.8 million.

• Other operating income / (expenses), are in line with the same period of the prior year. • Extraordinary items, net are composed of extraordinary gains of Euros 63.4 million and extraordinary expenses of Euros 48.5 million.

The Board of Directors Milan, September 1, 2000

36

37

PIRELLI GROUP CONSOLIDATED SIX-MONTH REPORT JUNE 30, 2000

38

(in thousands of euros) CONSOLIDATED BALANCE SHEETS

6.30.2000

12.31.1999

6.30.1999

ASSETS A) CAPITAL SUBSCRIPTION RIGHTS Portion uncalled

-

24

23

4,829 5,786 4,744 6,519 70,231 6,069 61,996

6,331 7,473 3,729 11,531 70,473 3,367 68,777

4,892 8,490 555 19,827 6,046 51,857

160,174

171,681

91,667

II) PROPERTY, PLANT AND EQUIPMENT Land and buildings Plant and machinery Industrial and commercial equipment Other property, plant and equipment Assets under construction and payments on account

657,634 1,313,496 132,449 153,817 191,061

654,203 1,324,374 143,875 156,044 146,275

625,791 1,148,498 112,623 90,307 179,017

TOTAL PROPERTY, PLANT AND EQUIPMENT

2,448,457

2,424,771

2,156,236

19,409 24,530 77,804

8,863 29,269 91,592

60,368 30,799 85,566

14,662 13,760 95,967 21,294 336,278

14,662 14,041 60,799 21,295 335,706

28,635 61,522 22,607 151,093

603,704

576,227

440,590

3,212,335

3,172,679

2,688,493

B) FIXED ASSETS I)

INTANGIBLE ASSETS Formation costs Patents and design patent rights Concession, licenses, trademarks and similar rights Goodwill Consolidation difference Intangible assets in progress and payments on account Other intangible assets

TOTAL INTANGIBLE ASSETS

III) FINANCIAL ASSETS Investments in: a) Subsidiaries b) Associated companies c) Other companies Financial receivables: a.2) Subsidiaries due beyond 1 year b.2) Associated due beyond 1 year d.2) Other companies due beyond 1 year Other securities Treasury shares

TOTAL FINANCIAL ASSETS

TOTAL FIXED ASSETS

39

(in thousands of euros) CONSOLIDATED BALANCE SHEETS

6.30.2000

12.31.1999

6.30.1999

C) CURRENT ASSETS I)

Inventories Raw materials, auxiliaries and consumables Work in process and semifinished products Work in progress against orders Finished products and goods for resale Advances

223,933 283,104 127,388 479,485 11,134

220,366 265,054 112,808 526,661 10,981

187,061 252,207 197,225 489,918 8,108

TOTAL INVENTORIES

1,125,044

1,135,870

1,134,519

II) Receivables Trade Subsidiaries Associated companies Parent companies Other receivables

1,767,435 797 93,476 77,502 1,509,933

1,509,676 563 27,626 33,196 1,104,133

1,609,937 109 19,026 265,502 798,734

TOTAL RECEIVABLES

3,449,143

2,675,194

2,693,308

191,439

221,054

209,114

191,439

221,054

209,114

IV) CASH AND BANKS Bank and postal deposits Checks Cash on hand

1,698,401 3,035 2,811

493,641 5,104 3,723

599,665 7,992 5,743

TOTAL CASH AND BANKS

1,704,247

502,468

613,400

TOTAL CURRENT ASSETS

6,469,873

4,534,586

4,650,341

98,676 32,996

79,265 34,781

69,709 33,318

131,672

114,046

103,027

9,813,880

7,821,335

7,441,884

III)

Current financial assets Other securities

TOTAL CURRENT FINANCIAL ASSETS

D) ACCRUED INCOME AND PREPAID EXPENSES Accrued income Prepaid expenses

TOTAL ACCRUED INCOME AND PREPAID EXPENSES

TOTAL ASSETS

40

(in thousands of euros) CONSOLIDATED BALANCE SHEETS

6.30.2000

12.31.1999

6.30.1999

LIABILITIES AND SHAREHOLDERS' EQUITY A) SHAREHOLDERS' EQUITY - Group

3,114,044

2,274,907

2,193,012

I) Share capital II) Share premium reserve III) Revaluation reserve IV) Legal reserve V) Reserve for treasury shares in portfolio VI) Statutory reserves VII) Other reserves: a) consolidation reserve b) sundry reserve VIII) Retained earnings IX) Net income for the period

1,034,430 269,511 2,855 206,430 336,278 -

1,032,152 270,083 2,855 204,840 335,706 -

1,031,970 454,696 2,855 204,840 151,093 -

124,715 43,002 138,587 958,236

29,271 43,002 63,871 293,127

138,176 43,002 64,053 102,327

174,079

179,042

173,156

170,932 3,147

167,007 12,035

156,451 16,705

3,288,123

2,453,949

2,366,168

214,986 165,602 502,510

224,738 152,423 246,362

233,966 145,653 185,536

TOTAL PROVISION FOR LIABILITIES AND EXPENSES

883,098

623,523

565,155

C) PROVISION FOR EMPLOYEES' LEAVING INDEMNITY

166,691

167,581

166,318

500,004 1,126,267 707,207 271,415 1,174,188 776 19,975 156,738 778,155 39,836 389,909

500,004 1,288,076 210,929 323,900 1,164,801 44 23,108 102,488 286,533 51,276 337,117

500,014 1,195,104 218,186 361,381 996,251 20,651 108,033 294,014 48,048 303,390

5,164,470

4,288,276

4,045,072

- Minority interest a) Capital and reserves b) Net income for the period

TOTAL SHAREHOLDERS' EQUITY

B) PROVISIONS FOR LIABILITIES AND EXPENSES Pension and similar obligations Income taxes Other

D) PAYABLES Bonds Bank borrowings Other financial companies Advances from customers Trade Subsidiaries Associated companies Parent companies Taxes Social security Other payables

TOTAL PAYABLES

41

(in thousands of euros) CONSOLIDATED BALANCE SHEETS

6.30.2000

12.31.1999

6.30.1999

E) ACCRUED LIABILITIES AND DEFERRED INCOME Accrued liabilities Deferred income

TOTAL ACCRUED LIABILITIES AND DEFERRED INCOME

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

MEMORANDUM ACCOUNTS

292,733 18,765

264,050 23,956

282,186 16,985

311,498

288,006

299,171

9,813,880

7,821,335

7,441,884

6.30.2000

12.31.1999

6.30.1999

PERSONAL GUARANTEES - Sureties on behalf of other companies - Endorsements on behalf of other companies

38,998 15,521 54,519

319 12,883 13,202

35,958 35,958

143,005 1,905 144,910

78,237 2,305 80,542

447,481 2,230 449,711

23,434 920,716 8,506 952,656

23,433 1,089,224 8,988 1,121,645

23,394 893,454 5,895 922,743

100,979 100,979

27,396 27,396

58,443 58,443

240 240

240 240

469 469

1,253,304

1,243,025

1,467,324

THIRD PARTY ASSETS HELD IN DEPOSIT - Securities held in deposit - Goods in process

ASSETS HELD BY THIRD PARTIES - Securities held as guarantees and sureties - Shares held in deposit - Goods in process

COMMITMENTS - Capital expenditures

OTHER MEMORANDUM ACCOUNTS - Potential losses for risk of default on discounted bills

TOTAL

42

(in thousands of euros) CONSOLIDATED STATEMENTS OF INCOME

1 st half 2000

1 st half 1999

1999

A) PRODUCTION VALUE Revenues from sales and services Changes in inventories of work in process, semifinished and finished products Changes in work in progress against orders Increase in property, plant and equipment Other revenues and income: a) Miscellaneous b) Government grants

TOTAL PRODUCTION VALUE

3,597,869

3,189,955

6,482,335

26,587 (11,134) 4,494

12,813 (1,368) 8,315

39,913 (74,882) 19,331

84,179 3,699

36,124 4,972

98,399 7,519

3,705,694

3,250,811

6,572,615

(1,851,600) (528,556) (48,335) (765,655)

(1,519,638) (500,758) (28,367) (726,525)

(3,123,347) (1,041,311) (62,704) (1,418,672)

(21,832) (166,722) -

(15,161) (151,510) -

(35,591) (312,122) (998)

(3,945)

(9,104)

(19,570)

13,298 (6,480) (112,577)

8,006 (13,439) (117,735)

34,512 (29,312) (232,744)

(3,492,404)

(3,074,231)

(6,241,859)

213,290

176,580

330,756

4,962

8,815

31,305

40 697 6,197 120,823 (165,214)

38 644 5,180 239,913 (257,317)

839 1,254 11,171 334,803 (402,600)

(32,495)

(2,727)

(23,228)

B) PRODUCTION COSTS Raw materials, auxiliaries, consumables and goods for resale Service expenses Lease and rent expenses Personnel Amortization of intangible assets: a) Amortization of intangible assets b) Depreciation of property, plant and equipment c) Other write-downs of fixed assets d) Write-downs of receivables included in current assets and cash and banks Changes in inventories of raw materials, auxiliaries, consumables and goods for resale Other accruals Other operating expenses

TOTAL PRODUCTION COSTS DIFFERENCE BETWEEN PRODUCTION VALUE AND PRODUCTION COSTS

C) FINANCIAL INCOME AND EXPENSES Investments income Other financial income: a) from receivables included in fixed assets b) from securities included in fixed assets c) from securities included in current assets d) income other than the above Interest and other financial expenses

TOTAL FINANCIAL INCOME AND EXPENSES

43

(in thousands of euros) CONSOLIDATED STATEMENTS OF INCOME

1 st half 2000

1 st half 1999

1999

D) VALUATION ADJUSTMENTS TO FINANCIAL ASSETS Revaluations Write-downs

138 (116)

495 (343)

2,199 (2,342)

22

152

(143)

1,672,382 (506,255)

13,030 (6,897)

223,350 (134,502)

TOTAL EXTRAORDINARY ITEMS

1,166,127

6,133

88,848

INCOME BEFORE INCOME TAXES

1,346,944

180,138

396,233

(385,561)

(61,106)

(91,071)

NET INCOME FOR THE PERIOD

961,383

119,032

305,162

GROUP MINORITY INTEREST

958,236 3,147

102,327 16,705

293,127 12,035

TOTAL VALUATION ADJUSTMENTS

E) EXTRAORDINARY ITEMS Extraordinary income Extraordinary expenses

Income taxes

44

SELECTED NOTES TO CONSOLIDATED SIX MONTHS INTERIM FINANCIAL REPORT JUNE 30, 2000 --------------------------------

FORM AND CONTENT

The consolidated six months interim financial report at June 30, 2000 has been prepared in the same format using the same accounting principles and principles of consolidation as those adopted in the financial statements at December 31, 1999 and described in the previous annual report. The list of subsidiaries and associated companies included in consolidation is provided at the end of the report. The reconciliation of the six months net result of the period and shareholders' equity reported by Pirelli S.p.A. at June 30, 2000 and the corresponding consolidated figures are presented in the supplementary information.

45

COMMENTS ON THE CONSOLIDATED BALANCE SHEETS

ASSETS

B) FIXED ASSETS

I)

INTANGIBLE ASSETS Intangible assets may be analyzed as follows:

(in thousands of euros) 12/31/1999

Translation Change in Increase Decrease Amortization 6/30/2000 adjustment consolidation area

. Formation costs

6,331

7

(120)

29

(1)

(1,417)

4,829

. Patents and design patent rights

7,473

0

0

824

(1,475)

(1,036)

5,786

3,729

17

0

1,872

0

(874)

4,744

. Goodwill

11,531

(4)

0

0

(2,659)

(2,349)

6,519

. Difference on consolidation

70,473

0

0

1,761

0

(2,003)

70,231

. Other

72,144

980

(5,601)

15,990

(1,295)

(14,153)

68,065

171,681

1,000

(5,721)

20,476

(5,430)

(21,832)

160,174

. Concessions, licenses, trademarks and similar rights

46

II) PROPERTY, PLANT AND EQUIPMENT

The movements in property, plant and equipment during the period are as follows:

(in thousands of euros)

6/30/2000

12/31/1999

5,825,769 121,255 (69,393) 234,650 (172,156) 5,940,125

5,220,159 48,165 331,610 468,895 (243,060) 5,825,769

3,400,998 58,297 (25,057) 166,722 (109,292) 3,491,668

3,158,571 7,124 107,409 312,122 (184,228) 3,400,998

2,448,457

2,424,771

Gross value Opening balances Translation adjustment Change in scope of consolidation Additions Disposals

Accumulated depreciation Opening balances Translation adjustment Change in scope of consolidation Depreciation charge for the year Disposals

Net values

The net increase in comparison with December 31, 1999 is due to the combination of the following: •

translation adjustments, in reference to property, plant and equipment included in the financial statements of foreign companies, and due to the weakness of the euro against the currencies in the countries in which the Group companies operate;

47

• • •

the change in the consolidation area as a result of the deconsolidation of the terrestrial optical systems business; additions of the period, which are 1.41 times, higher than the depreciation amount; disposals, mainly in reference to plants as a consequence of production rationalization;

III) FINANCIAL ASSETS Investments Investments went from Euros 129.7 million to Euros 121.7 million and can be analyzed as follows:

12/31/99

Subsidiaries

Translation adjustment

1/1/00

(in thousands of euros) Increase Decrease 6/30/00

Change in scope of consolidation

8,863

(70)

8,793

(60)

10,676

0

19,409

Associated companies

29,269

40

29,309

0

173

(4,952)

24,530

Other companies

91,592

44

91,636

0

1,660

(15,492)

77,804

129,724

14

129,738

(60)

12,509

(20,444)

121,743

The increase in the investments in subsidiaries total Euros 10.7 million and refers to the acquisition of the majority interest in Pirelli Telecom Cables Co. Ltd Wuxi (China). The decrease in investments in other companies for Euros 15.5 million is principally due to the sale of the investment in Cartiere Burgo S.p.A. (Euros 11.3 million) and the investment in CofiDe Compagnia Finanziaria De Benedetti S.p.A. (Euros 3.2 million).

48

C)

CURRENT ASSETS

I) INVENTORIES Inventories amount to Euros 1,125 million, compared to Euros 1,135.9 million at December 31, 1999, and can be analyzed as follows: (in thousands of euros)

6/30/2000

12/31/1999

685,255 439,787 2

689,144 446,722 4

1,125,044

1,135,870

. Cables and Systems Sector . Tyres Sector . Other

II) RECEIVABLES Receivables, which totaled Euros 2,675.2 million at December 31, 1999, now amount to Euros 3,449.1 million, and can be analyzed as follows: ( in thousands of euros )

Financial . Trade . Subsidiaries . Associated companies . Parent companies . Other receivables

6/30/2000 Trade and other

12/31/1999 Financial Trade and other

0 0 1,437 77,262 675,422

1,767,435 797 92,039 240 834,511

0 0 4,650 33,102 224,763

1,509,676 563 22,976 94 879,370

754,121

2,695,022

262,515

2,412,679

Trade receivables from customers : These may be analyzed by due date as follows:

49

(in thousands of euros)

. due within 12 months . due beyond 12 months . less: allowance for doubtful receivables

6/30/2000

12/31/1999

1,848,778 1,788 (83,131)

1,592,065 1,053 (83,442)

1,767,435

1,509,676

No receivables are due beyond five years.

III) CURRENT FINANCIAL ASSETS Current financial assets mainly consist of floating rate securities, issued and guaranteed by governments and banking institutions. The securities are held in safe-keeping at leading banking institutions.

LIABILITIES AND SHAREHOLDERS’ EQUITY

A) SHAREHOLDERS’ EQUITY

GROUP

“Share capital” totals Euros 1,034,430 thousand and consists of No. 1,901,281,673 ordinary shares and No. 88,006,016 savings shares, all with a par value of Euro 0.52 per share and normal dividend rights. The changes in shareholders’ equity are presented in the supplementary information.

50

MINORITY INTEREST The minority interest in shareholders’ equity decreased from Euros 179 million at December 31, 1999 to Euros 174.1 million at June 30, 2000. The change is partly due to the acquisition of a further holding in Alexandria Tire Co. S.A.E. and the net effect of the increase in net income in the first half of 2000, the payment of prior year dividends and the translation adjustment for the conversion of financial statements into Euros. The percentage ownership of investments held by the minority interest is as follows:

Celikord A.S. (Turkey) Sicable S.A. (Ivory Coast) Pirelli Cables Australia Ltd (Australia) P & A K.K. (Japan) Turk Pirelli Lastikleri A.S. (Turkey) Alexandria Tire Co. S.A.E. (Egypt) Turk Pirelli Kablo ve Sistemleri A.S. (Turkey) Pirelli Cabos S.A. (Brazil) Pirelli Pneus S.A. (Brazil) Solac Soc. Laminadora Ltd (Brazil) Pirelli de Venezuela C.A. (Venezuela) Pirelli Tyre Holding N.V. (The Netherlands)

06/30/2000

12/31/1999

49.00% 49.00% 49.00% 49.00% 37.81% 22.35% 16.25% 14.86% 13.03% 11.00% 3.78% 0.18%

49.00% 49.00% 49.00% 49.00% 37.81% 35.43% 16.25% 14.92% 13.03% 11.00% 3.78% 0.18%

51

B)

PROVISIONS FOR LIABILITIES AND EXPENSES

PROVISIONS FOR INCOME TAXES The provisions for income taxes include accruals relating to income taxes likely to be incurred but uncertain as to the amount or as to the date on which they will arise, as well as deferred taxation, as follows:

(in thousands of euros)

. Provision for current taxes . Provision for deferred taxes

6/30/2000

12/31/1999

31,647 133,955

26,237 126,186

165,602

152,423

The tax charge for the period is composed of the following: (in thousands of euros) st

. Current taxes . Deferred taxes

1 half 2000

1st half 1999

391,539 (5,978)

59,649 1,457

385,561

61,106

The tax charge has been determined on the basis of the taxable income for the six months, taking into account the utilization of any tax loss carry-forwards and by applying the nominal tax rates in each individual country. The higher tax charge compared to the first six months of 1999 is mainly due to the taxes on the gain realized on the sale of our terrestrial optical systems business.

52

The credit for deferred taxes was mainly determined by the accrual for extraordinary charges relating to productive restructuring and rationalization.

OTHER PROVISIONS The movements during the period in other provisions are as follows:

Balance at December 31, 1999

Restructuring 148,858

(in thousands of euros) Other Total 97,504 246,362

. Translation adjustment . Utilization . Increase

267 (53,757) 242,339

806 (18,042) 84,535

1,073 (71,799) 326,874

Balance at June 30, 2000

337,707

164,803

502,510

The provision for restructuring costs at June 30, 2000 amounts to Euros 337.7 million and consist of Euros 175 million for the Cables and Systems Sector and Euros 162.7 million for the Tyres Sector. The utilization during the period by the Cables and Systems Sector and Tyres Sector was Euros 32.8 million and Euros 21 million, respectively. The total of other provisions consists of accruals for litigation, industrial risks and claims, product warranties, etc..

53

D) PAYABLES Payables amount to Euros 5,164,5 million at June 30, 2000, compared to Euros 4,288.3 million at December 31, 1999, and can be analyzed as follows: (in thousands of euros) 6/30/2000 Financial Trade and other . Bonds . Bank borrowings . Other financial companies . Advances from customers . Trade . Subsidiaries . Associated companies . Parent companies . Taxes . Social security . Other payables

12/31/1999 Financial Trade and other

500,004 1,126,267 707,207 3,000 156,214 -

271,415 1,174,188 776 16,975 524 778,155 39,836 389,909

500,004 1,288,076 210,929 4,114 101,956 -

323,900 1,164,801 44 18,994 532 286,533 51,276 337,117

2,492,692

2,671,778

2,105,079

2,183,197

An analysis of payables by due date is as follows: - Financial payables (in thousands of euros)

6/30/2000 within 1 year beyond 1 year . Bonds . Bank borrowings . Other financial companies . Associated companies . Parent companies

12/31/1999 within 1 year beyond 1 year

4 323,078 658,079 2,976 156,214

500,000 803,189 49,128 24 -

4 357,186 162,232 4,114 101,956

500,000 930,890 48,697 -

1,140,351

1,352,341

625,492

1,479,587

Financial payables are covered by liens and mortgages for Euros 150 million. Financial payables due within the year amount to Euros 1,140.4 million and also include the current portion of long-term debt of Euros 37.8 million.

54

-

Bank borrowings Bank borrowings due beyond one year, amounting to Euros 803.2 million, include residual borrowing due beyond five years for Euros 110 million.

-

Payables to other financial companies The amount due beyond one year, amounting to Euros 49.1 million, includes Euros 38.5 million due beyond five years.

- Trade and other payables (in thousands of euros)

6/30/2000 within 1 year . Advances from customers . Trade . Subsidiaries . Associated companies . Parent companies . Taxes . Social security . Other payables

12/31/1999

beyond 1 year

within 1 year

beyond 1 year

271,415 1,174,188 776 16,975 524 428,364 39,836 360,445

349,791 29,464

323,900 1,164,801 44 18,994 532 207,139 47,343 306,557

79,394 3,933 30,560

2,292,523

379,255

2,069,310

113,887

55

CONSOLIDATED STATEMENTS OF INCOME

A) PRODUCTION VALUE -

Revenues from sales and services The distribution of sales by geographic area of destination and industry sector are reported in the following table:

(in thousands of euros)

1 st half 2000

1 st half 1999

Geographic area Europe: . Italy . Other European countries North America Central and South America Oceania, Africa and Asia

410,837 1,586,510 564,212 576,417 459,893

11.42% 44.10% 15.68% 16.02% 12.78%

390,950 1,428,887 503,842 571,195 295,081

12.26% 44.79% 15.79% 17.91% 9.25%

3,597,869

100.00%

3,189,955

100.00%

2,171,348 1,424,956 41,847 (40,282)

60.35% 39.61% 1.16% (1.12%)

1,892,586 1,295,823 37,733 (36,187)

59.33% 40.62% 1.18% (1.13%)

3,597,869

100.00%

3,189,955

100.00%

Sector Cables and Systems Tyres Other sectors Inter-eliminations

56

B) PRODUCTION COSTS

- Personnel costs Personnel costs consist of the following: ( in thousands of euros ) st

1 half 2000

1 st half 1999

600,299 125,556 15,686 10,782 13,332

564,825 119,095 20,620 9,920 12,065

765,655

726,525

Salaries and wages Social security costs Leaving indemnity Pension and similar costs Other costs

- Amortization and depreciation The depreciation charge for property, plant and equipment may be analyzed as follows: (in thousands of euros) st

Buildings Plant and machinery Commercial and industrial equipment Other assets

1 half 2000

1 st half 1999

19,202 109,126 21,929 16,465

14,883 103,476 18,335 14,816

166,722

151,510

C) FINANCIAL INCOME AND EXPENSES -

Investment income Investment income amounts to Euros 5 million and refers to dividends received from equity investments in other companies.

57

-

Other financial income “Income other than the above” consists of the following: ( in thousands of euros ) 1 half 2000 1st half 1999 st

Interest from associated companies Interest from parent companies Bank interest and other interest Other financial income from parent companies Miscellaneous financial income Gains on exchange

-

716 17,342 40,462 26 26,317 35,960

522 2,323 50,533 439 60,949 125,147

120,823

239,913

Interest and other financial expense These expenses include: (in thousands of euros) 1 half 2000 1st half 1999 st

Interest to associated companies Interest to parent companies Bond interest Bank interest and interest to other financial companies Other financial interest to associated companies Other financial interest to parent companies Miscellaneous financial expenses Losses on exchange

18 0 12,121 52,086 251 4,170 48,077 48,491 165,214

24 239 12,188 79,564 0 4,915 41,050 119,337 257,317

58

E) EXTRAORDINARY ITEMS -

Extraordinary income Extraordinary income went from Euros 13 million in the first six months of the prior year to Euros 1,672.4 million, and can be analyzed as follows: ( in thousands of euros ) 1 half 2000 1st half 1999 39,481 8,503 1,632,901 4,527 1,672,382 13,030 st

Gains on disposal Miscellaneous

"Gains on disposal" mainly include Euros 8.8 million of gains on the sale of CofiDe Compagnia Finanaziaria De Benedetti S.p.A. shares, Euros 13.7 million of gains on the sale of IMMSI shares and Euros 14.4 million on the sale of Cartiere Burgo S.p.A. shares. “Miscellaneous” mainly includes nonrecurring income on the sale of our terrestrial optical systems business concluded on February 14 of this year with the American group Cisco for Euros 1,623,3 million.

-

Extraordinary expenses Extraordinary expenses total Euros 506.3 million, compared to Euros 6.9 million in the first half of 1999, and consist of the following: ( in thousands of euros ) 1 half 2000 1st half 1999 9,885 26 496,370 6,871 506,255 6,897 st

Losses on disposals Miscellaneous

59

"Miscellaneous" basically includes industrial restructuring costs for Euros 253.4 million and costs related to the sale of our terrestrial optical systems business to Cisco Systems for Euros 212.3 million.

OTHER INFORMATION - Employees The average number of employees during the first half of 2000 in the companies included in the scope of consolidation, by category, is a follows:

. management . staff . operatives . temporary employment

645 10,954 26,132 2,917 40,648

60

- Exchange rates

The main exchange rates used for consolidation are as follows:

(local currency against Euro) Period-end 6/30/00 12/31/99

Change in %

Average 1st half 2000 1st half 1999

Change in %

Europe Italian lire German mark Dutch guilder French franc Spanish peseta Belgian franc British pound Swiss franc Greek drachma

1,936.27 1.95583 2.20371 6.55957 166.386 40.3399 0.6323 1.5576 336.830

1,936.27 1.95583 2.20371 6.55957 166.386 40.3399 0.62170 1.6051 330.300

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.71% (2.96%) 1.98%

1,936.27 1.95583 2.20371 6.55957 166.386 40.3399 0.61214 1.5853 334.4552

1,936.27 1.95583 2.20371 6.55957 166.386 40.3399 0.6723 1.5996 323.831

0.00% 0.00% (0.00%) (0.00%) 0.00% 0.00% (8.94%) (0.89%) 3.28%

0.9556 1.4157

1.0046 1.4608

(4.88%) (3.09%)

0.9601 1.4078

1.0891 1.6262

(11.84%) (13.43%)

1.7201 0.9556

1.7972 1.0046

(4.29%) (4.88%)

1.7163 0.9601

1.8990 1.0891

(9.62%) (11.84%)

1.5894

1.5422

3.06%

1.5740

1.6936

(7.06%)

655.957

655.957

0.00%

655.9570

655.957

0.00%

North America American dollar Canadian dollar

South America Brazilian real Argentine peso

Oceania Australian dollar

Africa Ivory Coast franc

61

- Net financial position The composition of the net financial position presented below, which improved by Euros 1,313.2 million compared to December 31, 1999, was commented on in the introduction to the report:

Short-term financial payables Accrued interest expenses Cash and banks Other securities Short-term financial receivables Accrued interest income Capital subscription rights - portion called up Net short-term financial position Medium/long-term financial payables Medium/long-term financial receivables Other securities Net medium/long-term debt position Net financial position

(in thousands of euros ) 6/30/2000 12/31/1999 1,140,351 625,492 29,639 18,011 (1,704,247) (502,468) (191,439) (221,054) (754,121) (262,515) (22,939) (9,143) 0 (24) (1,502,756) (351,701) 1,352,341 1,479,587 (124,389) (89,502) (21,294) (21,295) 1,206,658 1,368,790 (296,098) 1,017,089

62

63

PIRELLI GROUP

SUPPLEMENTARY INFORMATION

64

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of euros)

1/1 - 6/30/2000

NET (DEBT) AT BEGINNING OF YEAR

1/1 - 12/31/1999

(1,017,089)

Translation adjustments

(265,096)

7,837

(22,420)

Operating profit

213,290

330,756

Depreciation and amortization

188,554

347,713

Increase in intangible assets Increase in property, plant and equipment Increase in financial assets Disposal of intangible assets Disposal of property, plant and equipment Disposal of financial assets Net investments

(25,519) (234,650) (17,559) 718 25,217 70,796 (180,997)

(125,127) (468,895) (100,333) 42 44,872 2,528 (646,913)

Changes in inventories Changes in trade and other accounts receivable/payable Changes in working capital

(33,463) (159,191) (192,654)

3,038 31,161 34,199

Changes in provisions for liabilities and expenses Other changes FREE CASH FLOW

(9,469)

Cash flow before dividends

1,465,982

Dividends paid

(162,910)

Share capital increase Pirelli S.p.A. for conversion of bonds Share capital increase (minority interest) Changes in share capital Net change during year (*)

NET LIQUIDITY (DEBT) AT END OF PERIOD

5,947

14,082

4,173 1,166,127 (37,457) (385,561) (572) 719,272

Effects of the merger by incorporation in Pirelli S.p.A. of S.I.P. S.p.A.

33,985

(14,551)

Extraordinary items, net Financial income (expenses), net Income taxes, net Purchase of treasury shares Other

Net cash flow

5,947

0

0

113,822

0

88,848 (54,445) (91,071) (105,741) (295,892)

109,038

(344,479)

109,038

(162,791) 1,303,072

(507,270)

0

(229,338)

2,278 0 2,278

0 7,035 7,035 1,313,187

(751,993)

296,098

(1,017,089)

(162,132) 21,109 (1,172,164)

354,148 307,730 90,115

(1,313,187)

751,993

(*) Financed by: Increase (decrease) in long-term loans Increase (decrease) in short-term loans Decrease (increase) in cash and banks and cash equivalents

65

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands of euros)

Balance at December 31, 1998

SHARE CAPITAL

SHARE PREMIUM RESERVE

CONSOLIDATION RESERVE

1,024,198

461,727

142,325

Profit distribution, as per resolution of May 24, 1999 * dividends to shareholders * to directors Translation adjustment for change from Lire to Euros Assignment of bonus shares to employees

654,847

(140,081) (1,396) 7,031

(7,031) (923) (156,200)

Withdrawal from share premium reserve to set up reserve for treasury shares in portfolio

(184,613)

Adjustment of net equities of subsidiaries companies

8,477

Translation adjustment Net income for the year 270,083

2,283,097

(140,081) (1,396)

29,271

0 (156,200)

184,613

0

(46,786)

(38,309)

34,669

1,032,152

TOTAL

0

923

Effects of the merger by incorporation in Pirelli S.p.A. of S.I.P. S.p.A.

Balance at December 31, 1999

LEGAL RESERVE OTHER RESERVES RETAINED EARNINGS NET INCOME FOR THE PERIOD

34,669 293,127

293,127

943,401

2,274,907

(150,862) (1,747)

(150,862) (1,747)

Profit distribution, as per resolution of May 8, 2000 * dividends to shareholders * to directors February 10, 2000 subscription of No. 3,343,000 ordinary shares

1,739

1,739

April 27, 2000 subscription of No. 450,000 ordinary shares

234

234

May 19, 2000 subscription of No. 545,200 ordinary shares

284

284

June 21, 2000 subscription of No. 41,000 ordinary shares

21

21

Withdrawal from share premium reserve to set up reserve for treasury shares in portfolio

(572)

572

Adjustment of net equities of subsidiaries companies

59,676

Translation adjustment

35,768

Net income for the period Balance at June 30, 2000

1,034,430

269,511

124,715

(64,212)

(4,536) 35,768

958,236

958,236

1,685,388

3,114,044

66

RECONCILIATION OF NET RESULT AND SHAREHOLDERS' EQUITY OF PIRELLI S.P.A. AND CORRESPONDING CONSOLIDATED FIGURES (in thousands of euros) Share Capital

Pirelli S.p.A.

1,034,430

Reserves

996,663

Consolidation reserve

Net income

0

226,038

2,257,131

968,221

968,221

Earnings for the year of consolidated companies (before consolidation adjustment) Capital and reserves of consolidated companies (before consolidation adjustment)

Total

2,058,417

2,058,417

(2,029,258)

(2,029,258)

Consolidation adjustments: - carrying value of investments in consolidated companies - intragroup dividends

234,806

- other Consolidated

(139,250) 1,034,430

996,663

124,715

(234,806) (1,217) 958,236

0 (140,467) 3,114,044

67

COMPANIES CONSOLIDATED USING THE FULL CONSOLIDATION METHOD

Company

Activity

Headquarters

Share Capital

Percentage ownership

Percentage of vote

Held by

EUROPE

AUSTRIA

Pirelli Gesellschaft mbH

Tyres

Vienna

AS/000

10,000

100.00%

Lunares S.A.

Pirelli-Oekw GmbH

Cables and Systems

Vienna

Euro

2,071,176

100.00%

Pirelli Cable Holding N.V.

Tyres

Brussels

Euro

694,102

100.00%

Lunares S.A.

Cables and Systems

Helsinki

Euro

10,000

100.00%

Pirelli Cable Holding N.V.

Cables Pirelli S.A.

Cables and Systems

Saint Maurice

FF/000

900,000

100.00%

Pirelli Cable Holding N.V.

Eurelectric S.A.

Cables and Systems

La Bresse

FF/000

26,325

100.00%

Cables Pirelli S.A.

Pneus Pirelli S.A.

Tyres

Puteaux

Euro

3,062,400

100.00%

Lunares S.A.

Bergmann Kabel und Leitungen GmbH

Cables and Systems

Schwerin

DM/000

2,000

100.00%

Pirelli Kabel und Systeme Holding GmbH

Deutsche Pirelli Reifen Holding GmbH

Financial

Breuberg/Odenwald

DM/000

15,050

100.00%

Pirelli Tyre Holding N.V.

ISO Industrie Spedition Odenwald GmbH

Tyres

Breuberg/Odenwald

Euro

25,565

100.00%

Pirelli Reifenwerke GmbH & Co. K.G.

Materialverwertungsgesellschaft Breuberg GmbH

Tyres

Breuberg/Odenwald

Euro

25,565

100.00%

Deutsche Pirelli Reifen Hold. GmbH

Metzeler Reifen GmbH

Tyres

Breuberg/Odenwald

Euro

16,361,340

100.00%

Pirelli Deutschland A.G.

Pirelli Deutschland A.G.

Tyres

Breuberg/Odenwald

Euro

26,075,886

98.94%

Deutsche Pirelli Reifen Hold. GmbH

Pirelli Kabel und Systeme Holding GmbH

Cables and Systems

Berlin

DM/000

50

99.00%

Pirelli Cable Holding N.V.

1.00%

Pirelli Cavi e Sistemi S.p.A.

BELGIUM

Pirelli Tyres Belux S.A.

FINLAND

Pirelli Cables and Systems OY

FRANCE

GERMANY

Pirelli Kabel Grundstücksverwaltungs GmbH

Cables and Systems

Berlin

DM/000

50

100.00%

Pirelli Kabel und Systeme Holding GmbH

Pirelli Kabel und Systeme Beteiligungs GmbH

Cables and Systems

Berlin

DM/000

50

100.00%

Pirelli Kabel und Systeme Holding GmbH

Pirelli Kabel und Systeme GmbH & Co. KG

Cables and Systems

Berlin

DM/000

10,000

100.00%

Pirelli Kabel und Systeme Beteiligungs GmbH

Pirelli Kabel und Systeme Verwaltungs GmbH

Cables and Systems

Berlin

DM/000

50

100.00%

Pirelli Kabel und Systeme Beteiligungs GmbH

Pirelli Reifenwerke GmbH & Co. K.G.

Tyres

Breuberg/Odenwald

Euro

35,790,943

100.00%

Pirelli Deutschland A.G.

Pirelli Reifenwerke Geschaeftsfuehrungs GmbH

Services

Breuberg/Odenwald

Euro

25,565

100.00%

Deutsche Pirelli Reifen Hold. GmbH

Pneumobil GmbH

Tyres

Breuberg/Odenwald

Euro

259,225

99.62%

Pirelli Reifenwerke GmbH & Co. K.G.

Veith Wohnungsbau GmbH

Real estate

Breuberg/Odenwald

Euro

127,823

100.00%

Antem Representations & Trading Co. Ltd. in liq.

Tyres

Athens

Drs./000

1,000

100.00%

Diafimisis Roda Ltd (in liquidation)

Advertising

Athens

Drs./000

3,000

99.33%

Elastika Pirelli S.A.

Tyres

Athens

Drs./000

557,000

99.90%

Pirelli Deutschland A.G.

GREECE

0.33% 0.10% Pirelli Hellas S.A. (in liquidation)

Pirelli Hellas S.A. Elastika Pirelli S.A. Antem Repr.& Trading Co Ltd Lunares S.A. Pirelli Pneumatici Holding S.p.A.

Tyres

Athens

US.$/000

22,050

79.86%

Pirelli Tyre Holding N.V.

MKM Magyar Kabel Muvek RT.

Cables and Systems

Budapest

HUF/000

6,981,070

100.00%

Pirelli Cable Holding N.V.

Pirelli Construction Hungary Limited

Cables and Systems

Budapest

HUF/000

1,000

100.00%

Pirelli Cable Holding N.V.

Pirelli Hungary Tyre Trading and Services Limited

Tyres

Budaors

HUF/000

3,000

100.00%

Lunares S.A.

Centro Servizi Amministrativi Pirelli S.r.l.

Services

Milan

Fibre Ottiche Sud - F.O.S. S.p.A.

Optical fibers

Battipaglia (SA)

Fintheta S.p.A.

Real estate

Kallithea Immobiliare S.r.l. Istituto Piero Pirelli S.p.A. (in liquidation)

HUNGARY

ITALY

Euro

51,000

100.00%

Pirelli S.p.A.

Lire/mil.

10,000

100.00%

Pirelli Cavi e Sistemi S.p.A.

Milan

Euro

255,000

100.00%

Pirelli S.p.A.

Real estate

Milan

Euro

10,400

100.00%

Pirelli S.p.A.

Training

Milan

Euro

135,000

80.00%

Pirelli S.p.A.

10.00%

Pirelli Pneumatici Holding S.p.A.

10.00%

Pirelli Cavi e Sistemi S.p.A.

68

COMPANIES CONSOLIDATED USING THE FULL CONSOLIDATION METHOD

Company

Activity

Headquarters

Share Capital

Percentage ownership

Percentage of vote

Held by

Italagom S.r.l.

Tyres

Varese

Lire/mil.

100

98.00%

Neri Gomme & C. S.r.l. (in liquidation)

Tyres

Milan

Lire/mil.

20

100.00%

Sistema Puntogomme S.p.A.

Optical Technologies Italia S.p.A.

Cables and Systems

Milan

Euro

183,125,000

100.00%

Optical Technologies USA Corp.

Cables and Syst. hold. c.

Milan

Euro

182,694,200

98.75%

Agom S.A. Bioggio

(formerly Pirelli Componenti Ottici S.p.A.) Pirelli Cavi e Sistemi S.p.A.

1.25%

Pirelli S.p.A. Pirelli Société Générale S.A.

Pirelli Informatica S.p.A.

Information Systems

Milan

Euro

520,000

100.00%

Pirelli S.p.A.

Pirelli Metzeler Motovelo S.r.l

Tyres

Milan

Euro

4,590,000

100.00%

Metzeler Reifen GmbH

Pirelli Nastri Tecnici S.p.A. (in liquidation)

Sundry

Milan

Euro

384,642

100.00%

Pirelli S.p.A.

Pirelli Pneumatici Holding S.p.A.

Financial

Milan

Euro

59,800,000

100.00%

Pirelli Tyre Holding N.V.

Pirelli Pneumatici S.p.A.

Tyres

Milan

Euro

190,320,000

100.00%

Pirelli Pneumatici Holding S.p.A.

Pirelli Servizi Finanziari S.p.A.

Financial

Milan

Euro

1,976,000

100.00%

Pirelli S.p.A.

Pirelli Submarine Telecom Systems Italia S.p.A.

Cables and Systems

Milan

Euro

114,300

100.00%

Pirelli Submarine Telecom Systems Holding B.V.

Polo Viaggi S.r.l.

Travel Agency

Milan

Euro

46,800

100.00%

Pirelli S.p.A.

Servizi Aziendali Pirelli S.C.p.A.

Services

Milan

Euro

104,000

93.00%

Pirelli S.p.A.

(formerly Operazione Zara S.r.l.)

1.00%

Pirelli Cavi e Sistemi S.p.A.

1.00%

Pirelli Pneumatici S.p.A.

1.00%

Polo Viaggi S.r.l.

1.00%

Pirelli Pneumatici Holding S.p.A.

Sistema Puntogomme S.p.A.

Tyres

Milan

Euro

3,060,000

100.00%

Pirelli Pneumatici Holding S.p.A.

Tortona Test Area S.p.A. (in liquidation)

Tyres

Milan

Lire/mil.

1,000

100.00%

Pirelli Pneumatici S.p.A.

Trefin S.r.l.

Financial

Milan

Euro

4,242,476

100.00%

Pirelli S.p.A.

LUXEMBOURG

Gamirco S.A.

Financial

Luxembourg

SF/000

2,100

99.99%

Pirelli Finance (Luxembourg) S.A.

Financial

Luxembourg

Euro

270,228,168

100.00%

Pirelli Société Générale S.A. Pirelli S.p.A.

Tyres

Warsaw

Zloty

6,257,708,500

100.00%

Lunares S.A.

Cables and Systems

Arcozelo Vngaia

Escudos/000

309,000

70.91%

Cables Pirelli S.A.

29.09%

Eurelectric S.A.

POLAND

Pirelli Polska Sp.zo.o.

PORTUGAL

Desco Fabrica Portuguesa de Material Electrico e Electronico S.A.

RUMANIA

S.C. Pirelli Romania Cabluri si Sisteme S.A.

Cables and Systems

Slatina

RL/000

42,221,625

100.00%

Pirelli Cable Holding N.V.

Cables and Systems

Bratislava

SK

300,000,000

100.00%

Pirelli Cable Holding N.V.

Fercable S.A. Omnia Motor S.A.

Cables and Systems

Barcelona

Ptas./000

600,000

100.00%

Pirelli Cables y Sistemas S.A.

Tyres

Barcelona

Ptas./000

250,000

100.00%

Pirelli Neumaticos S.A.

Pirelli Cables y Sistemas S.A.

Cables and Systems

Barcelona

Ptas./000

5,700,000

100.00%

Pirelli Cable Holding N.V.

Pirelli Neumaticos S.A.

Tyres

Barcelona

Ptas./000

7,500,000

100.00%

Pirelli Tyre Holding N.V.

Pirelli Esmar S.A.

Cables and Systems

Torredembarra

Ptas./000

1,450,000

100.00%

Pirelli Cables y Sistemas S.A.

Tyres

Stockholm

SK/000

950

100.00%

Lunares S.A.

Agom S.A.

Tyres

Conthey

SF/000

50

75.00%

Lunares S.A.

Agom S.A. Bioggio

Tyres

Bioggio

SF/000

250

75.00%

Lunares S.A.

(formerly S.C. Elcaro S.A.)

SLOVAK REPUBLIC

Kablo Bratislava Spol. S.R.O.

SPAIN

SWEDEN

Pirelli Tyre Nordic AB

SWITZERLAND

69

COMPANIES CONSOLIDATED USING THE FULL CONSOLIDATION METHOD

Company

Activity

Headquarters

Share Capital

Percentage ownership

Agom S.A. Locarno

Tyres

Locarno

SF/000

50

75.00%

Lunares S.A.

Agom S.A. Lugano

Tyres

Lugano

SF/000

102

75.00%

Lunares S.A.

Biasi S.A.

Tyres

Lugano

SF/000

250

75.00%

Lunares S.A.

Lunares S.A.

Tyre holding comp.

Basel

SF/000

10,000

100.00%

Pirelli Tyre Holding N.V.

Pirelli Cables and Systems S.A.

Cables and Systems

Basel

SF/000

500

95.00%

Pirelli Cable Holding N.V.

5.00%

Percentage of vote

Held by

Pirelli Société Générale S.A.

Pirelli Produkte Holding A.G.

Cables and Systems

Basel

SF/000

9,500

100.00%

Pirelli Cable Holding N.V.

Pirelli Société de Services S.a.r.l.

Financial

Basel

SF/000

50

100.00%

Pirelli Société Générale S.A.

Pirelli Société Générale S.A.

Financial

Basel

SF/000

140,000

100.00%

Pirelli S.p.A.

Pirelli Submarine Telecom Systems S.A.

Cables and Systems

Basel

SF/000

100

100.00%

Pirelli Submarine Telecom Systems Holding B.V.

Pirelli Tyre (Europe) S.A.

Tyres

Basel

SF/000

1,000

100.00%

Lunares S.A.

RTS Ring Tread System (Suisse) S.A.

Tyres

Bioggio

SF/000

50

75.00%

Lunares S.A.

Optical Technologies The Netherlands B.V.

Cables and Systems

Delft

Euro

183,235,100

100.00%

Pirelli S.p.A.

Pirelli Cable Holding N.V.

Cables and Syst. hold. c.

Delft

Euro

272,515,065

100.00%

Pirelli Cavi e Sistemi S.p.A.

Pirelli Cables and Systems N.V.

Cables and Systems

Delft

Euro

5,000,000

100.00%

Pirelli Cable Holding N.V.

Pirelli Cable Overseas N.V.

Cables and Systems

Delft

Euro

10,000,000

100.00%

Pirelli Cavi e Sistemi S.p.A.

Pirelli Submarine Telecom Systems Holding B.V.

Cables and Systems

Delft

Euro

4,050,000

100.00%

Pirelli Cavi e Sistemi S.p.A.

Pirelli Tyre Holding N.V.

Tyre holding comp.

Amsterdam

Euro

558,396,000

99.82%

Pirelli S.p.A.

Pirelli Tyres Nederland B.V.

Tyres

Breukelen

Euro

18,152

100.00%

Lunares S.A.

Sipir Finance N.V.

Financial

Rotterdam

Euro

41,146,522

100.00%

Pirelli Tyre Holding N.V.

Tyres

Istanbul

TL/mil.

5,260,000

44.05%

Pirelli Tyre Holding N.V.

THE NETHERLANDS

TURKEY

Celikord A.S.

Turk-Pirelli Lastikleri A.S.

Tyres

Istanbul

TL/mil.

29,400,000

6.42%

Sipir Finance N.V.

0.27%

Pirelli Pneumatici Holding S.p.A.

0.27%

Pirelli Deutschland A.G.

60.01%

Pirelli Tyre Holding N.V.

1.57%

Sipir Finance N.V.

0.08%

Pirelli Deutschland A.G.

0.08%

Pirelli UK Tyres Ltd

0.08%

Pirelli Pneumatici S.p.A.

0.08%

Lunares S.A.

0.08%

Pirelli Pneumatici Holding S.p.A.

0.08%

Metzeler Reifen GmbH

0.08%

Pirelli Reifenwerke GmbH & Co. K.G.

0.08%

Pirelli Neumaticos S.A.

Türk Pirelli Kablo ve Sistemleri A.S.

Cables and Systems

Mudania / Bursa

TL/mil.

1,260,000

83.75%

Pirelli Cable Holding N.V.

Zalsan Zirai Arac Lastikleri A.S.

Tyres

Istanbul

TL/mil.

5,000

70.00%

Turk-Pirelli Lastikleri A.S.

Aberdare Cables Ltd

Cables and Systems

London

£/000

610

100.00%

Pirelli General plc

CTC 1994 Limited

Tyres

London

£

984

100.00%

Central Tyre Ltd

Central Tyre Ltd

Tyres

London

£/000

100

100.00%

Pirelli UK Tyres Ltd

Courier Tyre Company Ltd

Tyres

London

£/000

10

100.00%

Pirelli UK Tyres Ltd

CPK Auto Products Ltd

Tyres

London

£/000

10

100.00%

Pirelli UK Tyres Ltd

Pirelli Cables Ltd

Cables and Systems

London

£/000

100

100.00%

Pirelli General plc

Pirelli Construction Company Ltd

Cables and Systems

London

£/000

8,000

100.00%

Pirelli General plc

Pirelli Focom Limited

Cables and Systems

London

£/000

6,447

100.00%

Pirelli General plc

PFN Limited (formerly Pirelli Focom Networks Ltd)

Cables and Systems

London

£

2

100.00%

Pirelli General plc

Pirelli General plc

Cables and Systems

London

£/000

102,100

100.00%

Pirelli UK plc "B"

Pirelli Tyres Ltd

Tyres

London

£/000

16,000

100.00%

Pirelli UK Tyres Ltd

Pirelli UK Employee Share Trustee Limited

Financial

London

£

2

100.00%

Pirelli UK plc "C"

Pirelli UK Finance Ltd

Financial

London

£/000

6,969

100.00%

Pirelli UK plc "C"

Pirelli UK plc "A"

Tyre holding comp.

London

£/000

57,354

100.00%

Pirelli Tyre Holding N.V.

Pirelli UK plc "B"

Cables and Syst. hold. c.

London

£/000

54,299

100.00%

Pirelli Cable Holding N.V.

Pirelli UK plc "C"

Finance holding comp.

London

£/000

11,626

100.00%

Pirelli S.p.A.

Pirelli UK Tyres Ltd

Tyres

London

£/000

56,819

100.00%

Pirelli UK plc "A"

UNITED KINGDOM

NORTH AMERICA

CANADA

Pirelli Cables and Systems Inc.

Cables and Systems

St Jean sur Richelieu

Can.$/000

40,000

100.00%

Pirelli Cable Holding N.V.

Pirelli Tire Inc.

Tyres

Ottawa

Can.$/000

6,000

100.00%

Lunares S.A.

70

COMPANIES CONSOLIDATED USING THE FULL CONSOLIDATION METHOD

Company

Activity

Headquarters

Metzeler Motorcycle Tire North America Corp.

Tyres

Seattle (Washington)

Optical Technologies USA Corp.

Cables and Systems

Dover (Delaware)

Share Capital

Percentage ownership

Percentage of vote

Held by

U.S.A.

Pirelli Cables and Systems LLC

Cables and Systems

Wilmington (Delaware)

Pirelli Construction Services Inc.

Cables and Systems

Pirelli Jacobson Inc.

US.$/000

150

100.00%

US.$

45,000

78.89%

Metzeler Reifen GmbH Optical Technologies The Netherlands B.V.

21.11%

Pirelli Cavi e Sistemi S.p.A.

US.$

1

100.00%

Pirelli North America Inc. "B"

Dover (Delaware)

US.$/000

1

100.00%

Pirelli Cables and Systems LLC

Cables and Systems

Dover (Delaware)

US.$/000

2

100.00%

Pirelli Cables and Systems LLC

Pirelli North America Inc. "A"

Tyres

Wilmington (Delaware)

US.$

3

100.00%

Pirelli Tyre Holding N.V.

Pirelli North America Inc. "B"

Cables and Systems

Wilmington (Delaware)

US.$

7

100.00%

Pirelli Cavi e Sistemi S.p.A.

Pirelli Tire LLC

Tyres

Wilmington (Delaware)

US.$

1

100.00%

Pirelli North America Inc. "A"

Fipla S.A.

Cables and Systems

Buenos Aires

Peso

130

66.97%

Pirelli Cons. Cond.Inst. SAIC

Pirelli Consultora Conductores e Instalaciones S.A.I.C.

Cables and Systems

Buenos Aires

Peso

2,227

100.00%

Pirelli Cable Holding N.V.

Pirelli Argentina de Mandatos S.A.

Services

Buenos Aires

Peso/000

500

100.00%

Pirelli Société Générale S.A.

Pirelli Cables S.A.I.C.

Cables and Systems

Buenos Aires

Peso/000

44,509

74.72%

Pirelli Cons. Cond.Inst. SAIC

24.69%

Pirelli Cable Holding N.V.

99.02%

Pirelli Tyre Holding N.V.

CENTRAL/SOUTH AMERICA

ARGENTINA

Pirelli Neumaticos S.A.I.C.

Tyres

Buenos Aires

Peso/000

19,017

0.98% Tel 3 S.A.

Cables and Systems

Buenos Aires

Muriaé Ltda

Financial

Pirelli Pneus Nordeste Ltda

Tyres

Pirelli Produtos Especiais Ltda

Pirelli Pneumatici.Holding S.p.A.

Peso/000

11,075

51.00%

Pirelli Cables S.A.I.C.

Santo Andrè

Real

80,000,000

100.00%

Pirelli Pneus S/A

Feira de Santana

Real

29,991,402

100.00%

Pirelli Pneus S/A

Cables and Systems

Cerquilho

Real

43,143,421

100.00%

Pirelli Cabos S/A

Pirelli S.A.

Financial

Santo Andrè

Real

29,545,309

100.00%

Pirelli Pneus S/A

Tyres

Santo Andrè

Real

264,618,982

42.45%

0.00% Pirelli Pneumatici S.p.A.

41.32%

79.78% Pirelli Tyre Holding N.V.

BRAZIL

3.20%

Pirelli S.p.A.

0.27% Pirelli S.A.

Pirelli Cabos S/A

Cables and Systems

Santo Andrè

Real

162,806,011

73.81%

Pneuac Comercial e Importadora Ltda

Tyres

San Paolo

Real

12,913,526

100.00%

Pirelli Pneus S/A

Same da Amazonia Ltda

Cables and Systems

Manaus

Real

48,291,480

99.99%

Pirelli Cabos S/A

11.66%

0.01% Solac Laminadora de Cobre Ltda

Cables and Systems

Jacarei

Pirelli E y T S.A.

Cables and Systems

Pirelli Instalaciones Chile S.A.

Cables and Systems

68.40% Pirelli Cavi e Sistemi S.p.A. 9.87% Pirelli S.A.

Pneuac Com. e Import. Ltda

Real

8,485,100

89.00%

Pirelli Cabos S/A

Santiago

Ch.Peso./000

600,000

60.00%

Pirelli Instalaciones Chile S.A.

Santiago

Ch.Peso./000

918,707

90.00%

Pirelli Cons. Cond. Inst. SAIC

10.00%

Cite S.A.

95.00%

Pirelli Pneus S/A

CHILE

Pirelli Neumaticos Chile Limitada

Tyres

Santiago

US.$/000

20

5.00%

Pneuac Com. e Import. Ltda

COLUMBIA

Pirelli de Colombia S.A.

Tyres

Santa Fe De Bogota

Ch.Peso./000

3,478,290

94.94%

Pirelli Pneus S/A

4.98%

Pirelli de Venezuela C.A.

0.03%

Muriaé Ltda

0.03%

Pirelli Pneus Nordeste Ltda

0.02%

Pneuac Com. e Import. Ltda

DUTCH ANTILLES

Pirelli Financial Services Company N.V.

Financial

Curaçao

US.$/000

11,000

100.00%

Pirelli Société Générale S.A.

Pirelli Insurance & Reinsurance Company N.V.

Insurance

Curaçao

US.$/000

10,000

100.00%

Pirelli Financ. Services Co NV

Tyres

Mexico City

Mex. Peso

1,832,600

99.54%

MEXICO

Pirelmex S.A. de C.V.

0.46%

Pirelli Pneus S.A. Pneuac Comercial e Importadora Ltda

71

COMPANIES CONSOLIDATED USING THE FULL CONSOLIDATION METHOD

Company

Activity

Headquarters

Cables and Systems

Montevideo

Neumaticos de Venezuela C.A. (in liquidation)

Tyres

Caracas

Pirelli de Venezuela C.A.

Tyres

Valencia

Tyres

Alexandria

Share Capital

Percentage ownership

Percentage of vote

Held by

URUGUAY

Cite S.A.

Ur.Peso /000

4,900

100.00%

Pirelli Cables S.A.I.C.

VENEZUELA

Bol.

4,650,980

96.21%

Pirelli Tyre Holding N.V.

Bol./000

13,062,679

96.22%

Pirelli Tyre Holding N.V.

EGP

211,876,600

66.05%

Pirelli Pneumatici Holding S.p.A.

11.60%

Pirelli Pneumatici S.p.A.

Cables Pirelli S.A.

AFRICA

EGYPT

Alexandria Tire Company S.A.E.

IVORY COAST

SICABLE - Société Ivoirienne de Cables S.A.

Cables and Systems

Abidjan

CFA Fr./mil.

740

51.00%

Tyres

Sandton

Rands

1

100.00%

SOUTH AFRICA

Italian Tyre (Proprietary) Limited (formerly Newshelf 582 (Proprietary) Limited)

Lunares S.A.

OCEANIA

AUSTRALIA

Pirelli Cables Australia Ltd

Cables and Systems

Liverpool - N.S.W.

Austr.$/000

21,500

51.00%

Pirelli Tyres Australia Pty Ltd

Tyres

Pymble - N.S.W.

Austr.$/000

150

100.00%

Pirelli Cavi e Sistemi S.p.A. Lunares S.A.

Pirelli Cables NZ Ltd

Cables and Systems

Auckland

nz$/000

10

100.00%

Pirelli Cables Australia Ltd

Pirelli Tyres (NZ) Ltd

Tyres

Wellington

nz$

100

100.00%

Pirelli Tyres Australia Pty Ltd

Cables and Systems

New Delhi

Ind. Rupie

10,000,000

100.00%

Pirelli Cable Holding N.V.

Cables and Systems

Jakarta

US.$/000

50,000

99.30%

Pirelli Cable Holding N.V.

0.70%

Pirelli Cable Overseas N.V.

NEW ZEALAND

ASIA

INDIA

Pirelli Cables (India) Private Limited

INDONESIA

PT Pirelli Cables Indonesia

JAPAN

P & A K.K.

Tyres

Tokyo

Yen/000

1,700,000

51.00%

Pirelli K.K.

Tyres

Tokyo

Yen/000

40,000

100.00%

Pirelli Tyre Holding N.V.

Cables and Systems

Kuala Lumpur

Ringgit/000

10

99.00%

Pirelli Cavi e Sistemi S.p.A.

1.00%

Pirelli Cable Systems Pte Ltd

Lunares S.A.

MALAYSIA

Submarine Cable Installation Sdn Bhd

72

COMPANIES CONSOLIDATED USING THE FULL CONSOLIDATION METHOD

Company

Activity

Headquarters

Share Capital

Percentage ownership

Percentage of vote

Held by

Materials Purchasing Pte Ltd

Tyres

Singapore

Sing$./000

250

100.00%

Pirelli Tyre Holding N.V.

Pirelli Asia Pte Ltd

Tyres

Singapore

Sing.$

2

100.00%

Lunares S.A.

Pirelli Cable Systems Pte Ltd

Cables and Systems

Singapore

Sing$./000

25

50.00%

Pirelli General plc

50.00%

Pirelli Cable Holding N.V.

SINGAPORE

73

INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Company

Activity

Headquarters

Share Capital

Percentage

Percentage

ownership

of vote

Held by

ASSOCIATED COMPANY

EUROPE

GERMANY

Drahtcord Saar Geschaeftsfuehrungs GmbH

Tyres

Merzig

DM/000

60

50.00%

Pirelli Deutschland A.G.

Drahtcord Saar GmbH & Co. K.G.

Tyres

Merzig

DM/000

9,000

50.00%

Pirelli Deutschland A.G.

Kabeltrommel Gesellschaft mbH & Co K.G.

Cables and Systems

Colonia

DM/000

20,000

27.48%

Pirelli Kabel und Systeme GmbH & Co. KG

ITALY

Axxium Italia S.r.l.

Tyres

Acqui Terme (AL)

Lire/mil.

90

49.00%

Sistema Puntogomme S.p.A.

Maristel S.p.A.

Cables and Systems

Milan

Lire/mil.

2,000

50.00%

Pirelli Cavi e Sistemi S.p.A.

Servizio Titoli S.r.l.

Services

Torino

Euro

52,000

25.00%

Pirelli S.p.A.

SMP Melfi S.r.l.

Tyres

Melito (NA)

Lire/mil.

6,800

50.00%

Pirelli Pneumatici Holding S.p.A.

Sicrem S.p.A.

Tyres

Pizzighettone (CR)

Lire/mil.

18,000

33.33%

Pirelli Pneumatici Holding S.p.A.

Cables and Systems

Barcelona

Ptas./mil.

1

50.00%

Pirelli Cables y Sistemas SA

Cables and Systems

Gravesend

£./000

5,000

40.00%

Pirelli General plc

Cables and Systems

Buenos Aires

Peso/000

12

20.00%

Pirelli Argentina de Mandatos S.A.

K.M.P. Cabos Especiais e Sistemas Ltda

Cables and Systems

San Paolo

Real

6,600,916

40.00%

Pirelli Cabos S.A.

MCM Empreendimentos Imobiliarios - Empresa Pirelli & C. Ltda

Real estate

Santo Andrè

Real

2,000,000

30.00%

Pirelli S.A.

Cables and Systems

Jeddah

Saudi Rials/000

1,000

34.00%

Pirelli Cable Holding N.V.

SPAIN

Optiwire S.L.

UNITED KINGDOM

Rodco Ltd

CENTRAL/SOUTH AMERICA

ARGENTINA

Lineas de Transmision de Buenos Aires S.A.

BRAZIL

ASIA

SAUDI ARABIA

Sicew-Saudi Italian Co. for Electrical Works Ltd

74

OTHER INVESTMENTS IN SUBSIDIARES AND ASSOCIATED COMPANIES

Company

Activity

Headquarters

Cables and Systems

Vienna

Distribution

La Courneuve

Cables and Systems Cables and Systems Cables and Systems

Share Capital

Percentage ownership

Percentage of vote

Held by

EUROPE

AUSTRIA

Pirelli Kabelwerke und Systeme GmbH

AS/000

500

100.00%

Pirelli Cavi e Sistemi S.p.A.

FF

657,500

100.00%

Pirelli S.p.A.

Szecseny Budapest Budapest

HUF/000 HUF/000 HUF/000

36,330 1,239,841 328,330

25.16% 100.00% 100.00%

MKM Magyar Kabel Muvek Rt. MKM Magyar Kabel Muvek Rt. MKM Magyar Kabel Muvek Rt.

Tyres

Milan

Lire/mil.

2,000

40.00%

Tyres

Valencia

Bol.

100,000

Cables and Systems Cables and Systems Cables and Systems

Sandton Vereeniging Brits

Rands Rands Rands

4,000 9,886,098 632,912

50.00% 100.00% 21.00%

US.$/000 US.$/001

25,141 13,100

66.47% 51.15%

Pirelli Cable Overseas N.V. Pirelli Cable Holding N.V.

Austr.$

2

100.00%

Pirelli Cables Australia Ltd

FRANCE

LDS France - Soc.de Transport et Distribution S.A.

HUNGARY

Ipoly Kabeldob KFT. Kabel Keszletertekesito BT. "Kabel" Gepgyarto Epitoipari Es Szolgaltato KFT.

ITALY

Trelleborg Wheel System S.p.A.

Pirelli Pneumatici S.p.A.

CENTRAL/SOUTH AMERICA

VENEZUELA

Comercializadora de Neumaticos 2050 C.A.

100.00%

Pirelli de Venezuela C.A.

AFRICA

SOUTH AFRICA

AFCAB Holdings (Proprietary) Ltd African Cables Ltd ATC (Proprietary) Ltd

Pirelli Cable Holding N.V. AFCAB Holdings (Proprietary) Ltd African Cables Ltd

ASIA

CHINA

Pirelli Telecom Cables Co. Ltd Wuxi (formerly Wuxi Tong Ling Cable Company Ltd) Cables and Systems Tianjin Top Power Cables Co. Ltd Cables and Systems

Xuelang Town Tianjin Municipality

OCEANIA

AUSTRALIA

MM Cables Energy Products Superannuation Pty Ltd Cables and Systems

Sydney

75

OTHER INVESTMENTS CONSIDERED SIGNIFICANT AS PER CONSOB RESOLUTION No. 11971 OF MAY 14, 1999

Company

Activity

Headquarters

Share Capital

Percentage

Percentage

ownership

of vote

Held by

AUSTRALIA

Optix Australia Ltd

Cables and Systems Tottenham(Victoria) $Austr.

4,000,000

15.00%

Pirelli Cables Australia Ltd

FRANCE

Pneu Holding S.A.

Tyres Holding

Grenoble

F.F.

110,779,200

14.21%

Sipir Finance N.V.

Cogeneration

Breuberg/Odenwald

DM

3,000,000

19.00%

Pirelli Deutschland AG

Eurofly Service S.p.A.

Services

Caselle Torinese

Lire/mil.

2,375

16.33%

Pirelli S.p.A.

F.C. Internazionale Milano S.p.A.

Sport

Milan

Lire/mil.

50,194

13.25%

Pirelli S.p.A.

Hermes S.p.A.

Financial

Treviso

Lire/mil.

900

14.17%

Pirelli S.p.A.

Financial

Amsterdam

Euro

14.00%

Pirelli Finance (Luxembourg) SA

Tyres

Tunis

TND

15.83%

Pirelli Pneumatici S.p.A.

Cogeneration

Istanbul

LT

13.98%

Türk-Pirelli Lastikleri A.S.

GERMANY

Pirelli Energie Deutschland GmbH

ITALY

THE NETHERLANDS

MB Venture Capital Fund I Participating Company G N.V.

50,000

TUNISIA

Société Tunisienne des Industries de Pnéumatiques S.A.

28,979,500

TURKEY

Türk-Pirelli Enerji A.S.

900,000,000,000

4.99%

Celikord A.S.

76